28th August – Giving wings to better air connectivity

Giving wings to better air connectivity

Civil aviation is a Central subject and one that barely got significant attention from the States until recently.

The cooperation of States is seen as a major factor in the growth of the civil aviation sector. The Regional Connectivity Scheme, Ude Desh ka Aam Naagrik (UDAN), has become a game-changer as this flagship programme has a built-in mechanism to develop stakes of State governments in the growth of the sector.

Giving wings to better air connectivity

Key policy interventions

Thirty States and Union Territories have already signed memoranda of understanding with the Central government. The policies of States and Centre are now being interlinked to make flying accessible and affordable.

The case of ATF –

  • For any airline in India, the cost of Aviation Turbine Fuel (ATF) forms about 40% of the total operational cost. States have very high rates of value-added tax (VAT) on ATF — sometimes as high as 25% — which has dampened the growth trajectory of civil aviation. The airline industry is capital-intensive and works on very thin profit margins. Therefore, relief on ATF is a major incentive for airlines to augment their operations.
  • For States, it would be a notional revenue loss which can be offset by enhanced economic activities as a result of increased air connectivity to the region.
  • Pending the decision on ATF at the GST Council where States are the major stakeholders, UDAN has motivated State governments to reduce the VAT on ATF to 1% for the flights that are operated under this scheme.
  • Reducing VAT on ATF is the biggest lever States can operate, which will enable them in being an equal partner in steering sector policy.

Airport development

  • The second area is in the development and management of airports. There are many regional airports which can be developed by States on their own or in collaboration with the Airports Authority of India (AAI).
  • In this, there have been different models of public-private-partnership which can be leveraged to develop infrastructures. Land involves huge capital and is a scarce resource. Innovative models can be explored to create viable ‘no-frill airports’.
  • Under UDAN, the Union government, with the help of the States, has operationalised 24 unserved airports over the past two years; 100 more are to be developed in the next five years, which can only be achieved through the active collaboration between willing States and the Centre.

Linking the hinterland

  • States and the Central government can play a crucial role in supporting airlines to develop air services in the remote regions. To reduce the operational cost of airlines and airport operators, incentives from State governments have been sought: some in the form of financial support such as VAT reduction; sharing of viability gap funding with airlines, and non-financial incentives such as providing security and fire services free of cost to airport operators.
  • To attract airlines from regional to remote connectivity, further interventions are necessary. Considering the infrastructural constraints and difficult terrain, small aircraft operators need to be encouraged. Areas which cannot be connected meaningfully by road or rail have to be linked by air.
  • Convergence is an element in governance which is often overlooked due to compartmentalisation in implementation. States may converge their relevant schemes relating to tourism, health, and insurance for supporting air connectivity to supplement the objectives of regional connectivity.

Conclusion –

For this States need to create a conducive business environment to facilitate the strong aspirations of a burgeoning Indian middle class to fly at least once a year. It would boost ticket sales from the present level of eight crore domestic tickets. Developing airports, incentivising airlines and pooling resources of both the Union and State governments can accelerate the harmonised growth of the Indian civil aviation sector which would be equitable and inclusive.

SourceThe Hindu

Also read: 27th August – A bottom-up approach to conservation