The Indian aviation industry had a lot of hope from the Modi government, given its pro-reform tilt. Statements like ‘less government, more governance’ and mentioning tourism as the third ‘T’ in PM Modi’s ‘5T’ governance model, boosted sentiments. A year later, nothing much has happened on the ground despite the good intentions and bold statements. Many in the industry feel that the Modi government deserves 2 marks out of 10 in aviation. Those two marks actually come from the fact that there have been no major scams last year.

The biggest challenge that the Indian aviation sector faces is ideological. The Left-leaning approach of policymakers in the past led to a false perception that providing any support to the aviation industry would be bad politics. It would mean diversion of scarce government resources for the ‘rich’, an image bolstered by glamorous images of airports and cabin crew in magazines and movies.

This then becomes a self-fulfilling prophecy. If the aviation industry is not supported by the right policies, it may continue to remain unaffordable for the masses, like mobile telecom was till the late 1990s. Visionary policy decisions and a reduction of licence fees to a small fraction of the gross revenue of telecom operators created the telecom revolution. Aviation needs a similar revolution.

We tend to ignore the critical role that aviation industry played in creating the success stories of Hong Kong, Singapore and UAE. For any potential investor or tourist, the first question is typically “How do I get there and how much does it cost?”

The ideological bottleneck manifests itself in terms of exorbitant cost of jet fuel, high taxes on aircraft maintenance and private jets; high airport royalties and lack of subsidies for non-viable regional airports.

India sells perhaps the world’s costliest jet fuel, a whopping 60% costlier than that in competing regions like the Gulf and SE Asia. A trip to Srinagar, Goa or Cochin is therefore costlier than that to Phuket, Langkawi, Bali or Dubai. It is this classic self-goal that has forced Indian tourists abroad, around 18 million per annum. On the other hand, India’s foreign tourist arrivals (FTA) stand at an abysmal 7.4 million per annum, as compared to Singapore (14 million),

Malaysia (26 million), Thailand (27 million) and China (56 million).

West Bengal chief minister Mamata Banerjee proved this myth wrong. In August 2013, when her government took the bold step of abolishing the sales tax on jet fuel at all regional airports in West Bengal, no one took to the streets in protest. The passenger traffic in Bagdogra grew by a whopping 43% in FY15, the highest across all airports in India.

High taxation and airport charges on aircraft maintenance repair and overhaul (MRO) have pushed all Indian airlines to fly to Sri Lanka, Gulf and SE Asia for heavy maintenance. This is a self-created loss of almost R12 crore per day, along with associated jobs and economic multipliers.

Remote locations require connectivity through private jets and helicopters. High taxation on private aircraft, of nearly 20%, high parking charges and no funding support for Tier II/III airports have prevented regional connectivity in India.

The aviation ministry came out with a draft policy which was panned by industry, state governments and media alike. It clearly showed lack of involvement of different stakeholders at the drafting stage. According to media reports, the ministry is now getting yet another committee to improve upon the draft policy. India’s rivals are laughing.

Despite all this, FY15 has seen a revival in Indian aviation thanks to global oil price reductions, improvement in the Indian economy and a series of discount offers from airlines. Passenger and cargo traffic grew in FY15 by 12.5% and 11%, respectively, which is good. The growth potential of Indian aviation, however, is far higher.

What should the Modi government do in Year 2?

First and foremost, we need a clear statement from PM Modi that a robust aviation industry is critical to India’s economic growth. That it is an industry that creates investments, jobs and tourism and hence will receive the PMO’s closer attention, especially on matters that involve other overlapping ministries like finance, defence, home and environment, etc.

Then comes long-pending reforms like the abolition of route dispersal guidelines (RDG) and the illogical 5/20 Rule; reduction in jet fuel prices; abolition of taxes on aircraft maintenance; immediate creation of the Essential Air Services Fund (EASF); expediting of greenfield airport projects, speeding up of the visa-on-arrival (VOA) facility; support for helicopters and private jets; and promotion of indigenous aerospace manufacturing.

The Air Navigation Services of the Airports Authority of India (AAI) should be hived off into an independent company under the Companies Act 2013 and the AAI should be listed on the stock market. Air India should be privatised either through a strategic sale or an outright auction. DGCA needs to undergo a complete overhaul—the humiliation of India’s downgrading to Category 2 still rankles.

The aviation and defence ministries need to collaborate for flexible use of airspace (FUA) that will reduce zig-zag flight routes and the wastage of costly jet fuel. Implementation of ISRO’s satellite-based navigation system called ‘GAGAN’ should be expedited. Five National Aviation Universities (NAU) need to be established across the country, preferably through PPP.

Finally, the Modi government needs to facilitate a national debate on the need for ‘Open skies policy’ (OSP) for India. We have an OSP with USA since 2005 and a global OSP in air cargo—both have helped India. OSP may hurt certain inefficient Indian carriers initially but will make them better off in the long run. India, as a whole, would gain.
Should the Indian aviation industry receive the right attention from the Modi government in its second year, it has the potential to grow by 18-20% continuously for the next 4 years, giving a massive fillip to investments, jobs and tourism. That may take Indian aviation, currently ranked ninth in the world, to number three by 2020.

Assisted by S Vasudevan, director (aerospace and defence) at KPMG in India

The author is partner and India head of aerospace and defence at global consultancy KPMG. Views are personal

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