Await­ing that De­layed Clear­ance For a Take-Off

The Economic Times - - Breaking Ideas - Palash Roy Chowd­hury

With a new govern­ment, a bright new eco­nomic roadmap lies ahead. Avi­a­tion, a key driver of ur­ban­i­sa­tion and job cre­ation, should be an im­por­tant mile­stone on this roadmap. Pas­sen­ger traf­fic has tripled in the last decade and is ex­pected to triple again in the next decade from the cur­rent 160 mil­lion per year.

But such growth, in its cur­rent form, is not sus­tain­able. The avi­a­tion pol­icy frame­work has been largely un­able to keep pace and many key con­stituents — air­port oper­a­tors, air­lines, main­te­nance-re­pair-over­haul (MRO) oper­a­tors — are mak­ing losses. A change in mind­set, along with three broad themes, will al­low the sec­tor to take-off. The po­lit­i­cal psy­che must shed the “lux­ury” con­no­ta­tion; avi­a­tion is now not only a com­mod­ity but a crit­i­cal one that im­pacts many sec­tors.

In­dia needs to cre­ate an en­vi­ron­ment that at­tracts global in­vest­ment. The time is right: large equip­ment mak­ers are in­tro­duc­ing next-gen­er­a­tion prod­ucts and are look­ing for in­vest­ments close to their cus­tomers. But In­dia hasn’t pro­jected it­self as an al­ter­na­tive to es­tab­lished re­gional hubs. While we are giv­ing bil­lions in rev­enue to global orig­i­nal equip­ment man­u­fac­tur­ers (OEMs), they are choos­ing coun­tries like Sin­ga­pore and UAE for in­vest­ments.

A key prob­lem lies in the am­bigu­ous tax laws. For in­stance, third­party MROs have to deal with a slew of charges: air­port roy­al­ties, cus­toms du­ties, ser­vice tax on labour and value-added tax on spare parts. These off­set lower labour costs and quicker turn­around times, mak­ing In­dia 25% more ex­pen­sive than for­eign MROs. Air­lines also face state fuel taxes of up to 30%, mak­ing fuel 15% more ex­pen­sive for In­dian car­ri­ers. Air­port tar­iff is an­other area that needs ra­tio­nal­i­sa­tion.

The rigid bu­reau­cracy sig­nif­i­cantly ex­tends im­ple­men­ta­tion time­lines and the risks in­volved. Whether it is in­ter-min­is­te­rial nav­i­ga­tion, en­vi­ron­men­tal clear­ances, ac­cess to land parcels or air­port se­cu­rity and nav­i­ga­tion re­stric­tions, the list of hur­dles is long. Re­gional air­ports — In­dia needs to build or up­grade 200 to en­sure coun­try-wide cov­er­age — have un­ac­cept­ably long pay­back on in­vest­ments due to these im­ped­i­ments. An em­pow­ered in­ter-min­is­te­rial work­ing group pro­vid­ing sin­gle-win­dow clear­ances needs to be looked at with more fer­vour. Ar­eas such as cargo, MRO and gen­eral avi­a­tion, in­clud­ing ro­tor­craft, need at­ten­tion. He­li­copters are cru­cial in med­i­cal evac­u­a­tions, dis­as­ter re­sponse, se­cu­rity, tourism, traf­fic con­trol, and law and or­der. But the size of the he­li­copter fleet, tiny to be­gin with, has de­creased in the last few years. Cities such as Sao Paulo have more he­li­copters than all of In­dia. A com­pre­hen­sive up­dated pol­icy frame­work that ad­dresses these de­fi­cien­cies un­der a new Civil Avi­a­tion Author­ity with larger au­ton­omy and flex­i­bil­ity is a must. While In­dia adds tens of mil­lions to the work­force and ur­ban mi­gra­tion rises, fast-grow­ing in­dus­tries such as avi­a­tion face a sig­nif­i­cant talent gap. In­cen­tivis­ing pri­vate play­ers to es­tab­lish world-class cen­tres for skill de­vel­op­ment will ad­dress the talent gap and en­able In­dia to de­velop hi-tech in­tel­lec­tual property. First, fo­cus on gen­er­at­ing high num­bers of people with ba­sic but qual­ity train­ing to ad­dress labour-in­ten­sive ar­eas such as man­u­fac­tur­ing, MRO and lo­gis­tics. Sec­ond, raise com­pe­tence at the high end to ad­dress crit­i­cal de­sign, pro­cess­ing and ma­te­rial tech­nolo­gies in aero­space. State­spon­sored indige­nous pro­grammes such as the NCAD will help in de­vel­op­ing an avi­a­tion ecosys­tem. The new govern­ment needs to view avi­a­tion strate­gi­cally. At stake are more than one lakh hi-tech jobs, bil­lions of dol­lars in taxes, and a strate­gic growth of tech­nol­ogy and the man­u­fac­tur­ing base that is the key to re­gional bal­anc­ing. The de­ci­sive­ness and speed of ex­e­cu­tion of the new regime will de­ter­mine how quickly the sec­tor takes-off.

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