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Insights into Editorial: Giving wings to better air connectivity


Insights into Editorial: Giving wings to better air connectivity


                         

Context:

In the last session of Parliament, the government acknowledged that only one-fourth of the air routes granted under the Regional Connectivity Scheme (RCS) or UDAN (Ude Desh ka Aam Nagrik- loosely translated to ‘every common man flies’) have become operational.

Flights have commenced so far on merely 186 out of 705 RCS routes it had offered to airline operators so far.

Civil aviation is a Central subject and one that barely got significant attention from the States until recently.

It is evident from the fact that very few States in India have active civil aviation departments.

This is also due to the reason that States have had a passive role, invariably, having had to look up to the Central government for the development of airports and enhancing air connectivity.

 

 

However, in the last four years, the situation has changed considerably:

The cooperation of States is seen as a major factor in the growth of the civil aviation sector. The Regional Connectivity Scheme, UdeDeshkaAamNaagrik (UDAN), has become a game changer as this flagship programme has a built-in mechanism to develop stakes of State governments in the growth of the sector.

The government had launched the Udan (Ude Desh ka Aam Nagrik) scheme in October 2016 to stimulate regional air connectivity and make air travel affordable to the masses.

Aviation minister launched the government’s regional connectivity scheme Udan is not only “crucial” for the growth of the North-eastern region but also provide “affordable” aviation to the people.

 

International UDAN or Overseas UDAN.:

International UDAN is an extension of the domestic UDAN scheme that rolled out last year.

  • UDAN in its domestic avatar seeks to boost air connectivity by linking up un-served and under-served airports in Tier 2 and Tier 3 cities with the big cities and also with each other.
  • This is done by offering cheap tickets to passengers and the Central and State governments paying a subsidy to the airlines to enable them to offer cheap tickets.
  • Under International UDAN, the plan is to connect India’s smaller cities directly to some key foreign destinations in the neighbourhood.
  • Such direct air connectivity, it is hoped, would promote the development of the city and the State by wooing tourists and businesspeople to travel via smaller towns, instead of their flying through the metros.
  • The scheme seeks to make use of the open skies policy that India has with other Asian countries that allows direct and unlimited flights to and from these nations to 18 Indian destinations. Now, these routes are untested, and airlines could be understandably reluctant to ply them.
  • To encourage them to participate, the government offers a subsidy in the form of pre-decided payout per seat. Airlines are required to bid on the number of passenger seats per flight for which such support is required.

 

Key policy interventions to promote Airlines in India:

  • The policies of States and Centre are now being interlinked to make flying accessible and affordable.
  • Governments are poised for the growth as they have the potential to strengthen their partnership under the cooperative federalism framework to provide the required impetus to the sector.
  • Here are some policy intervention suggestions to jump-start the aviation market.
  • For any airline in India, the cost of Aviation Turbine Fuel (ATF) forms about 40% of the total operational cost.
  • Keeping petroleum products out of the purview of Goods and Services Tax (GST) may be a policy imperative for the State governments but this is a step that adversely impacts the expansion of air services to the States.
  • States have very high rates of value-added tax (VAT) on ATF sometimes as high as 25% which has dampened the growth trajectory of civil aviation. ATF is a small component of overall petroleum products and deserves to be treated separately.
  • The airline industry is capital-intensive and works on very thin profit margins. Therefore, relief on ATF is a major incentive for airlines to augment their operations.
  • UDAN has motivated State governments to reduce the VAT on ATF to 1% for the flights that are operated under this scheme.
  • Airports such as Jharsuguda (Odisha) and Kolhapur (Maharashtra) have successfully attracted airlines to connect these hitherto unconnected regions.
  • Reducing VAT on ATF is the biggest lever States can operate, which will enable them in being an equal partner in steering sector policy.

 

Connecting the Unconnected areas:

However, to attract airlines from regional to remote connectivity, further interventions are necessary.

Considering the infrastructural constraints and difficult terrain, small aircraft operators need to be encouraged.

Many a time, policy reluctance is observed considering the financial non-viability of the models to connect remote areas using smaller aircraft and helicopters. But air connectivity to these difficult regions is indispensable.

Areas which cannot be connected meaningfully by road or rail have to be linked by air. No doubt, they will be cost-effective if the economic analysis is factored-in.

For example, travel from Dehradun to Pithoragarh (both in Uttarakhand) by road takes 16 hours and communication is almost cut-off in the rainy season.

Air connectivity would not only bring down travel time but also be a boon in emergencies. This is also true for northeast India, the islands and also hilly States.

Convergence is an element in governance which is often overlooked due to a compartmentalisation in implementation.

States may converge their relevant schemes relating to tourism, health, and insurance for supporting air connectivity to supplement the objectives of regional connectivity.

 

Another area is in the development and management of airports:

  • There are many regional airports which can be developed by States on their own or in collaboration with the Airports Authority of India (AAI).
  • In this, there have been different models of public-private-partnership which can be leveraged to develop infrastructures. Land involves huge capital and is a scarce resource. Innovative models can be explored to create viable ‘no-frill airports’.
  • These functional airports can open up regions and change the way people travel. India had about 70 airports since Independence until recently.
  • Under UDAN, the Union government, with the help of the States, has operationalised 24 unserved airports over the past two years; 100 more are to be developed in the next five years, which can only be achieved through the active collaboration between willing States and the Centre.

 

Linking the hinterland:

Third, States and the Central government can play a crucial role in supporting airlines to develop air services in the remote regions.

To reduce operational cost of airlines and airport operators, incentives from State governments have been sought: some in the form of financial support such as VAT reduction; sharing of viability gap funding with airlines, and non-financial incentives such as providing security and fire services free of cost to airport operators.

Under UDAN, some success stories have motivated States to announce innovative approaches and policies in support of airlines.

 

Conclusion:

An International Civil Aviation Organization (ICAO) study has shown that the output multiplier and employment multiplier of civil aviation are 3.25 and 6.10, respectively.

Empirically, this has been proved in many airports within India where the connectivity has changed the economic landscape in a positive way.

Currently the penetration of the aviation market in India stands at 7%. There is potential to be among the global top three nations in terms of domestic and international passenger traffic.

For this States need to create a conducive business environment to facilitate the strong aspirations of a burgeoning Indian middle class to fly at least once a year.

It would boost ticket sales from the present level of eight crore domestic tickets. Developing airports, incentivising airlines and pooling resources of both the Union and State governments can accelerate the harmonised growth of the Indian civil aviation sector which would be equitable and inclusive.