The government has mooted a new Civil Aviation Policy to be effective next year. Among other things, the government proposes to come up with a Regional Connectivity Scheme to make use of the unused airstrips across the country. To fund the scheme, the policy proposed to establish a Regional Connectivity Fund, to be financed by a 2% levy on airfares.
The Ministry of Civil Aviation (MoCA) has put out a new draft ‘National Civil Aviation Policy’, 2015. The ministry has given three weeks for comments and suggestions from various stake holders. The vision of this policy is to create an eco system, to enable 30 crore domestic ticketing by 2022 which stands at around 7 crore in the year 2014-15. The policy in its mission statement mentions safe, secure, affordable and sustainable air travel with access to various parts of India and the world.
Air Passenger Traffic in India
The passenger traffic in the country has been steadily growing at an average rate of more than 8% in the last five years, except in 2012-13. In this period, India has registered the fourth fastest growth in passenger traffic after Japan, Brazil and China. As per data available with the Ministry of Civil Aviation, the domestic passenger traffic has grown from 53.8 million in 2010-11 to 68.4 million in 2014-15, a growth more than 27%. Except for the dip in 2012-13, the domestic passenger traffic has continuously increased year after year. The international passenger, on the other hand has grown from 35.1 million in 2010-11 to 45.6 million in 2014-15, a growth of more than 42%.
Important parts of the Policy
The draft policy covers the following major issues among others.
- Regional connectivity
- 5/20 Rule
- Fiscal support
- Airports developed by State Government
- Private sector or in PPP mode
- Airports Authority of India
- Aeronautical ‘ Make in India’
- Aviation security, Immigration and Customs
- Ancillary Revenue
- Essential Services Maintenance Act, 1968
- Aviation education and skill development
The draft policy proposes a Regional Connectivity Scheme (RCS) to be effective from 1st April, 2016. The crux of the policy is to ensure that the all inclusive fare for a one hour flight on RCS routes shall not exceed Rs 2500 per passenger. This is in line with the vision of the policy to increase the domestic passenger traffic by fourfold in the next 7 years from about 7 crore to 30 crore.
The policy proposes a set of four different measures to be adopted for the implementation of RCS.
- Revival of un-served or under-served aerodromes and airstrips.
- Concessions by different stakeholders.
- Viability Gap Funding (VGF) for scheduled commuter airlines.
- Cost-effective security solutions by Bureau of Civil Aviation Security and State Governments.
The policy mentions that only 75 out of 476 airstrips/airports have scheduled operations as on date. The revival of these unused air strips as per demand is to be done by the Airports Authority of India (AAI) at a cost not exceeding Rs 50 crore.
The policy also proposes to put the onus on state governments to reduce VAT on Aviation Turbine Fuel (ATF) to 1% on less if the state governments wish to extend the RCS scheme to airstrips within their states.
The policy also proposes a set of subsidies by the Government of India for the scheduled commuter airlines (SCA) flying to RCS locations. The proposed subsidies include the following for a period of 10 years.
- No airport charges
- Service Tax exemption on tickets
- Provision of free police and fire services by State governments.
- ATF drawn by SCA’s from the Regional Connectivity Scheme (RCS) airports exempt from excise duty.
- Viability Gap Funding (VGF) indexed to ATF prices and inflation
How does the Government propose to fund this Scheme?
In the draft policy, the government has proposed a Regional Connectivity Fund (RCF). This RCF will be funded by a levy (cess) of 2% on all domestic and international tickets from 1st January 2016. The Aircraft Act of 1934 authorizes the government to levy such a cess. The policy also proposes easy entry and exit options for carriers into the RCS.
The revenue accrued to the government from service tax on Air Travel was about 2877 crore in 2013-14. Considering these numbers, the levy of 2% may not yield more than 2000 crore to the government.
Will these steps help improve the Air Passenger Traffic?
In terms of the domestic air passenger traffic, the scheme itself may not help more than 20000 to 30000 passengers a day, based on the current passenger data. To reach the target of 30 crore domestic ticketing by 2022, the passenger traffic has to grow upwards of 50% every year. At the current growth rate, these numbers look impossible. Whether such a growth will be fuelled by the RCS remains to be seen.
Other proposals in the Policy
The policy also proposes to encourage the use of civilian helicopters and charter operations to attract high end tourists. According to the draft policy, India currently has less than 300 civilian helicopters, less than 25% of what Brazil has (over 1300). The draft policy also talks about skill development for the aviation sector and better security systems among others.
Featured Image: By José Luis Celada Euba [CC BY-SA 2.0], via Wikimedia Commons