DRAFT RE­GIONAL CON­NEC­TIV­ITY SCHEME

It is clear that the role played by the state gov­ern­ments will be crit­i­cal to the suc­cess of Re­gional Con­nec­tiv­ity Scheme (RCS)

SP's Airbuz - - Table Of Contents - BY B. K. PANDEY

RE­GIONAL AVI­A­TION IS GEN­ER­ALLY re­garded as the seg­ment of the In­dian air­line in­dus­try that of­fers im­mense po­ten­tial for growth in the long term. It is not with­out rea­son there­fore that there was a dis­tinct fo­cus on this seg­ment of the in­dus­try in the Na­tional Civil Avi­a­tion Pol­icy 2016 (NCAP 2016) un­veiled on June 15 this year by the Min­istry of Civil Avi­a­tion (MoCA). An im­por­tant com­po­nent of the NCAP 2016 is what is termed as the Re­gional Con­nec­tiv­ity Scheme (RCS) which is aimed at pro­vid­ing air ser­vices to un­served and un­der­served air­ports of the coun­try through re­vival of ex­ist­ing airstrips and air­ports re­tain­ing these in the nofrills cat­e­gory.

On Fri­day July 1, 2016, the MoCA has placed in pub­lic do­main, a draft doc­u­ment on this scheme and has in­vited feed­back from all stake­hold­ers by July 22. Cur­rently, air traf­fic is con­cen­trated largely be­tween the met­ros and a few other large ci­ties. At present, there are 394 un­served and 16 un­der­served air­ports in the coun­try. The MoCA is of the view that of these air­ports, 30 can be made oper­a­tional with­out any ad­di­tional in­vest­ment and re­gional flights can com­mence op­er­a­tions im­me­di­ately.

In ad­di­tion, the gov­ern­ment has made bud­getary al­lo­ca­tion for the de­vel­op­ment of an­other 60 air­ports un­der the RCS in the ini­tial phase. This scheme is ex­pected to pro­vide the much needed im­pe­tus for the growth of air­port in­fra­struc­ture in the re­mote as well as those ar­eas of the coun­try that are not eas­ily ac­ces­si­ble by road. This will cer­tainly pro­vide a boost to re­gional avi­a­tion which in turn will fuel eco­nomic growth es­pe­cially of the hin­ter­land. The gov­ern­ment ex­pects the RCS to show re­sults in just 12 to 15 months af­ter its im­ple­men­ta­tion.

The gov­ern­ment aims to achieve this firstly by mak­ing op­er­a­tions to re­gional air­ports com­mer­cially at­trac­tive for re­gional air­lines. This is pro­posed to be achieved by pro­vid­ing at­trac­tive fi­nan­cial in­cen­tives to re­gional car­ri­ers through a sys­tem called Vi­a­bil­ity Gap Fund­ing (VGF) to com­pen­sate for losses suf­fered by them. Re­sources for VGF will be raised through im­po­si­tion of a levy on tick­ets for flights on non-re­gional routes. This should pro­vide suf­fi­cient in­cen­tive for air­lines to op­er­ate flights to re­gional air­ports which for them may not be ad­e­quately re­mu­ner­a­tive. In ad­di­tion, there are pro­vi­sions for other fi­nan­cial con­ces­sions by both the cen­tral and state gov­ern­ments such as ser­vice charge ex­emp­tions, waiver of air­port charges and re­duc­tion of value added tax (VAT) to less than one per cent on avi­a­tion tur­bine fuel (ATF). The state gov­ern­ment would be re­quired to pro­vide fire ser­vices free of cost as also elec­tric­ity, wa­ter and other util­i­ties at the re­gional air­ports at sub­stan­tially re­duced rates. They will also be re­quired to pro­vide good road con­nec­tiv­ity from dif­fer­ent parts of the city to the lo­cal air­port. All these will con­trib­ute to sub­stan­tial re­duc­tion in oper­at­ing costs for the air­lines and the air­ports.

The gov­ern­ment also aims to make fly­ing from re­gional air­ports eas­ily ac­ces­si­ble as well as af­ford­able for large seg­ments of so­ci­ety in Tier-II, Tier-III and Tier-IV ci­ties and towns that have not had the op­por­tu­nity to avail of this fa­cil­ity so far. This has been at­tempted by cap­ping air fares. Pas­sen­gers fly­ing from an air­port which takes less than 30 min­utes to reach the des­ti­na­tion, will have to pay a fare of just ` 1,200. For a flight of 60 min­utes, the max­i­mum air­fare will be lim­ited to ` 2,500.

As per Dr Ma­hesh Sharma, Min­is­ter of State for Civil Avi­a­tion, the launch of RCS is an in­te­gral step in achiev­ing the ob­jec­tives of the NCAP 2016 of en­hanc­ing pas­sen­ger traf­fic in the do­mes­tic seg­ment to 30 crore by 2022 and to 50 crore by 2027. The RCS is likely to a give a ma­jor fil­lip to tourism and em­ploy­ment gen­er­a­tion in Tier-II, Tier-III and Tier-IV ci­ties. Through in­tro­duc­tion of he­li­copters and small air­craft, it is also likely to sig­nif­i­cantly re­duce travel time in re­mote and hilly re­gions, as well as is­land ter­ri­to­ries and other ar­eas of the coun­try af­flicted with in­sur­gency and other se­cu­rity is­sues.

To fa­cil­i­tate the RCS, the gov­ern­ment has taken steps to make it eas­ier for air­lines by per­mit­ting them to im­port air­craft that are up to 18 years in age. This will in­spire new play­ers to foray into the air­line in­dus­try as the ini­tial in­vest­ment will be low. All these mea­sures will bring in a mul­ti­plier ef­fect in the growth of air travel. THE UN­CER­TAIN­TIES. On the face of it, the scheme ap­pears well crafted and is ex­pected to prove to be a bo­nanza for the In­dian air­line in­dus­try. How­ever, there may be im­ped­i­ments that could make it dif­fi­cult, if not im­pos­si­ble, for the MoCA to achieve the ob­jec­tives of RCS as en­vis­aged. While this scheme is re­garded by an­a­lysts as bold and in­no­va­tive that is ex­pected to boost the growth of air traf­fic and con­se­quently ben­e­fit both the re­gional car­ri­ers and large seg­ments of the In­dian so­ci­ety, it will un­for­tu­nately im­pose a bur­den by way of higher fares for air pas­sen­gers fly­ing on non-re­gional routes. This is seen as some­what un­fair.

In some ways, the RCS will im­pose new fi­nan­cial bur­den for re­gional car­ri­ers as well. Air­lines seek­ing to use non-oper­a­tional air­ports, which re­quire sub­stan­tial in­vest­ment for re­vival, in ad­di­tion to ` 50 lakh that they are re­quired to sub­mit as bank guar­an­tee for ev­ery route, they will have to pro­vide a bank guar­an­tee of an ad­di­tional ` 1 crore to the gov­ern­ment. Even though this ad­di­tional com­mit­ment by the air­lines is lim­ited to a du­ra­tion of one year, the in­dus­try re­gards the added fi­nan­cial bur­den as in­or­di­nately high.

But most im­por­tantly, as this scheme calls for close co­op­er­a­tion with the gov­ern­ments of the states in which the re­gional air­ports are lo­cated, much will de­pend on whether the states would come for­ward to bear the bur­den of the tax breaks and other in­cen­tives to make the scheme a suc­cess. The li­a­bil­ity of rais­ing funds for VGF is re­quired to be shared be­tween the cen­tral and state gov­ern­ments in the ra­tio of 80:20. Also, the states in­volved in RCS should be will­ing to re­duce VAT on jet fuel to one per cent or less. Cur­rently, only West Ben­gal and Andhra Pradesh im­pose VAT on ATF of one per cent or less. Other states charge much higher rates, some as high as 30 per cent. It may be dif­fi­cult for these states to will­ingly and eas­ily ac­cept loss of rev­enue. Sug­ges­tion by the Min­istry of Civil Avi­a­tion to the states to cut VAT to four per cent has yet not drawn any favourable re­sponse from most of them. For the point of view of the states, any re­duc­tion in VAT will lower tax rev­enue for them. A re­port by GMR Group, which op­er­ates the Hy­der­abad air­port, in­di­cates that VAT at 16 per cent charged by the Te­lan­gana Gov­ern­ment brought in a rev­enue of ` 150 crore in fi­nan­cial year 2014. If VAT is re­duced to four per cent, the loss to the state gov­ern­ment will be to the tune of ` 110 crore.

It is clear that the role played by the state gov­ern­ments will be crit­i­cal to the suc­cess of RCS. To get all states af­fected by the new pol­icy on board to make the scheme a suc­cess could prove to be a daunt­ing chal­lenge es­pe­cially in the pre­vail­ing po­lit­i­cal cli­mate in the coun­try.

RCS IS AIMED AT PRO­VID­ING AIR SER­VICES TO UN­SERVED AND UN­DER­SERVED AIR­PORTS OF THE COUN­TRY THROUGH RE­VIVAL OF EX­IST­ING AIRSTRIPS AND AIR­PORTS RE­TAIN­ING THESE IN THE NO-FRILLS CAT­E­GORY THE LI­A­BIL­ITY OF RAIS­ING FUNDS FOR VGF IS RE­QUIRED TO BE SHARED BE­TWEEN THE CEN­TRAL AND STATE GOV­ERN­MENTS IN THE RA­TIO OF 80:20

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