Reforms can make aviation a $250 billion industry, by 2025

With an anticipated 3-fold increase in domestic air traffic, the Indian aviation sector has the potential to contribute to over 5% of the GDP and create economic value of up to $ 250 Billion on an annual basis by 2025. By 2050, it could generate direct employment for more than 2.3 million people.

This has been predicted in a report called ‘Maximising the contribution of aviation to the Indian economy’, prepared by CAPA- Centre for Aviation. The report highlights that aviation can play a critical role in delivering many of the government’s priority initiatives including inbound and domestic tourism development, the ‘Make in India’ programme, enhanced trade competitiveness and broad-based socio-economic development.

The report released by TATA SIA Airlines Limited reveals that the incremental domestic traffic handled in the last ten years was almost three times greater than in the previous 50 years. This clearly indicates that Indian aviation is yet to achieve its true potential.

This requires the attention of the highest levels of government to establish a clear vision and roadmap for the sector and create an enabling environment. In a country with low penetration of aviation, where only an estimated 1-2% of the population travel by air and the annual per capita seats are less than a quarter that of China, Indonesia or Thailand, the results of this nurturing could be transformative for the economy.

The report looks at opportunities in five categories and has made strong recommendations that could impact the future of Indian aviation: 1. Reduce the cost of doing business Rationalisation of taxes on ATF: ATF, which accounts for up to a significant 30-35% of the operating cost of Indian airlines, is 45% more expensive in India than in the United States, due to the combination of import duty, excise and sales taxation. The removal of sales taxation on ATF would bring its price down by around 20% and deliver a 7% drop in operating expenses, potentially boosting traffic by around 8-9%. Lowering the high cost of airports: The aeronautical charges at India’s airports are amongst the highest in the world and more expensive as compared to major neighbouring hubs in the region such as Singapore and Dubai Making in-country MROs more competitive: Service tax on labour, VAT on materials, and import duties applied to incountry aircraft maintenance providers should be lifted. This would obviate the current practice of sending empty aircraft to neighbouring hubs for maintenance and spawn an indigenous MRO industry, employing thousands and significantly contributing to the exchequer and to “Make in India”

2. Make it easier to do business Single window process and defined timeline in licensing : Currently to set up an airline up to 10 government agencies may have to be approached, which creates significant delays Simplify RDG: Let market forces prevail - Cat 1 and Cat 3 routes should be combined into one. To promote remote region connectivity India can emulate markets like the US, Canada, Europe and Australia, where airlines are incentivised to provide connectivity by means of direct grants and subsidies which ensure that relevant services are provided to the communities which need them. Commercial matters should be left to the airlines: Let market forces prevail. Airlines should be allowed and encouraged to innovate for pricing and ancillary service for customers’ benefits Expedite cargo processing and reduce dwell time: Lack of technology, prevalence of manual procedures and processes, and greater incidence of multiple inspections means that the dwell time of air cargo can be 1.5-2 days for exports and 2-4 days for imports, as against a matter of hours at other global airports, thus increasing costs and spoilage of perishable goods 3. Create a liberal aviation regime Abolish 5/20 rule: Apart from the fact that there are no global parallels to this rule, the regulation is discriminatory to Indian airlines as foreign carriers that do not meet these criteria are allowed to operate in Indian skies, but Indian airlines cannot enjoy reciprocal rights. Indian carriers are best placed to promote India as a tourism destination and should be encouraged to provide international connectivity if they wish to do so. Establish a clear bilateral policy: Rule based and transparent award and allocation of bilateral rights is critical for airlines to plan and deploy capacity, and for India to enhance trade and investment ties with strategic markets across the globe 4. Invest in airport infrastructure, airspace management and skill development Set up Airports Approval Commission: India is heading for a traffic logjam with most of the existing metro airport infrastructure getting saturated in 5 years. The Airports Approval Commission should determine what kind of airports India requires, when and where they are required, how much capacity is necessary and the level of capex that should be invested Develop supply-side capacity : Investments are also required in airspace management, as also in skill development to support the sector’s growth 5. Focus on safety oversight Access to expertise and trained, fit-for-purpose resources are critical for the DGCA to maintain India’s international standing as a safe and well regulated jurisdiction