Transport sector gets policy push, but still caught in the slow lane

Aviation, ports and highways all see move aimed at boosting investor interest

“Hawai chappal wale ko hawai jahaj mein bithana hain (those wearing bathroom slippers have to be taken in an aeroplane),” says Jayant Sinha, minister of state for civil aviation, on the government’s intent to make flying affordable.

Investment revival, especially in the highway and port sectors, is another plank of the Narendra Modi government’s transport policy, the overall theme being improving of connectivity through better infrastructure. Enabling policies in aviation, along with a window provided by cheaper fuel prices, has allowed India to become the third-largest market for domestic passengers, behind America and China. However, infrastructure bottlenecks are an issue.

The government’s Regional Connectivity Scheme (RCS) in aviation, to put previously unconnected cities on the map, is finally showing signs of picking up. Through viability gap funding, financed from a levy on trunk routes, the government aims to entice airline operators to start operations on routes considered unviable.

The first bidding round is over and six operators (established ones Alliance Air and SpiceJet and lesser known Air Odisha and Truejet) have been selected to connect 128 new routes. “If we talk about the past one year, the single biggest achievement has been UDAN (the scheme). Through a fund of only ~205 crore, collected through cross-subsidy and not taxpayer money, we have been able to add 33 airports to the aviation network,” Sinha said in an interview last week.

The sector was sceptical over the viability of such a model and even took the government to court over the decision to levy cess on major routes. A framework that now makes sense to private players was, however, put in place.

Market leader IndiGo decided to overhaul its business model and foray into regional aviation. “Every company does business to make profit; the role of the government is to create enabling policies which make it viable for the operators. IndiGo is one of the most efficient and profitable airlines in the world. If they are taking a ~10,0000-crore bet on UDAN, they are doing it because they find it good for business,” Sinha says on the airline’s move.

SpiceJet chairman Ajay Singh says the policy guidelines make it lucrative. “One of the most important parts of RCS is a three-year exclusivity on these routes. Half the seats are not under any fare cap and we believe there is great potential in such routes,” he said.

However, there is an absence of infrastructure which can handle the sudden increase. Airports remain congested and there are acute skill shortages in aviation, while airlines have more than 600 planes on their order book. A report by aviation consultancy CAPA paints a gloomy picture, of six major airports exhausting their capacity by 2025, while the government is simply unprepared. “The situation in Mumbai is critical, to say the least. On an average, an aeroplane remains in the air for an extra 20 minutes circling over the airport to get landing permission. This means extra fuel burn for us,” says an executive of a private airline.

The proposed Navi Mumbai airport, whose deadline has been pushed more than five times, is slated to be completed by 2022, with the bidding process finally over. At Delhi, the capacity is over-utilised, with airlines struggling for slots. The ministry has asked UKbased NATS to suggest ways of improving airside development.

“India’s economic transformation cannot happen with such inadequate airport infrastructure and, more important, with such under-preparedness. The economic repercussion of an airport capacity crunch would be devastating and unthinkable,” said Kapil Kaul, South Asia head at CAPA.

In the road highways sector, there has been some success in bringing back investor interest. “Now, there is a confidence in the sector that the government can take a larger bite of the pie and also deliver,” Vijay Chibber, former secretary in the ministry, told Business Standard.

The hybrid-annuity model (HAM) of construction, where the central government funds 40 per cent of the project cost, was one big factor for this revival. The next logical step should now be reduced exposure in EPC (engineering, procurement and construction) projects, fully funded by the government.

“The industry seems to have recovered from the downturn and a healthy atmosphere is emerging. Reduction in EPC is needed now and the focus should be public-private partnership (PPP) in highway project construction,” said Chibber.

In 2016-17, the target was to award 25,000 km in highway projects — 15,000 km by National Highways Authority of India and the rest by the ministry of road transport and highways. According to official data, NHAI completed 8,231 km of construction and awarded 16,271 km in the year.

Experts say the infrastructure sector is out of inertia, with much policy action. “Various changes in the regulatory landscape leads one to a conclusion that the intent to change the status quo is there. There are, however, issues that have arisen and there seems to be a positive assurance from the government to hold larger stakeholder consultation and have a relook,” said Shailendra Singh, principal at Advaita Legal.

He points to the ports sector as having undergone major overhaul over three years. “That includes a paradigm change through the Major Ports Authority Bill, 2016. It seeks to provide greater autonomy, flexibility and a quasi-regulatory adjudication framework for disputes or claims related to rights and obligations of major ports and PPP concessionaires, besides reviewing stressed PPP projects,” Singh said.

However, the existing Board of Port Trusts under the Major Port Trusts Act, 1963, is still controlled by the central government and lacks teeth. Similar legislative changes are being planned for the metro rail sector, for attracting private investment in construction and operation. “One hopes that the legal framework would be a self-contained code in all aspects of construction and operations. It should not end up being a legislation of reference(s) or cross- linkages to the Indian Railways Act of 1989, Indian Tramways Act of 1886 and other such legislation,” Singh said.

The Motor Vehicles (Amendment) Bill of 2016 addresses road safety issues. It provides for stiffer penalties, permitting of electronic enforcement, improving the fitness certification and licensing regime, statutory provisions for protection of Good Samaritans and recognition of information technologyenabled enforcement systems. Chibber said a road safety consultant, independent of the government, should be put in place. The Bill, yet to be passed by the Rajya Sabha, also paves way for reforms in public transport.

Minister Sinha accepts aviation infrastructure is a complicated issue, though the government has taken steps to improve it. Scaling the entire transport sector while keeping it affordable and reliable could still be a far cry.