Introduction
India’s civil aviation industry is on a high-growth trajectory. India aims to become the third-largest aviation market by 2020 and the largest by 2030. The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity. India is the ninth-largest civil aviation market in the world, with a market size of around US$ 16 billion.
“The world is focused on Indian aviation – from manufacturers, tourism boards, airlines and global businesses to individual travellers, shippers and businessmen. If we can find common purpose among all stakeholders in Indian aviation, a bright future is at hand” said Mr. Tony Tyler, Director General and CEO, International Air Transport Association (IATA).
Market Size
In January 2016, domestic air passenger traffic rose 23 per cent to 7.66 million from 6.25 million during the same month of last year. Passenger traffic during the January-December 2015 increased at a rate of 20.3 per cent to 81.1 million from 67.4 million in the corresponding period a year ago.
In January 2016, total aircraft movements at all Indian airports stood at 156,048, which was 15.9 per cent higher than January 2015. International and domestic aircraft movements increased 10.6 per cent and 17.5 per cent, respectively, in January 2016.
Indian domestic air traffic is expected to cross 100 million passengers by FY2017, compared to 81 million passengers in 2015, as per Centre for Asia Pacific Aviation (CAPA).
India is among the five fastest-growing aviation markets globally with 275 million new passengers The airlines operating in India are projected to record a collective operating profit of Rs 8,100 crore (US$ 1.29 billion) in fiscal year 2016, according to Crisil Ltd.
FDI Policy
- 100% Foreign Direct Investment (FDI) is permitted for Greenfield airport projects under the automatic route.
- Up to 74% FDI is permitted for existing airport projects under the automatic route, above 74% and up to 100% permitted under government approval route.
- Up to 49% FDI is permitted in domestic scheduled passenger airlines under the automatic route. 100% permitted for NRIs. Up to 49% FDI under the automatic route is permitted in Non-Scheduled Air Transport Service. FDI above 49% and up to 74% is permitted under Government approval route. 100% FDI permitted for NRIs.
- Up to 100% FDI is permitted in helicopter services and seaplanes under the automatic route.
- Up to 49% FDI is permitted in ground handling services under the automatic route. FDI above 49% and up to 74% is permitted under government approval route. 100% FDI permitted for NRIs.
- Up to 100% FDI is permitted in maintenance and repair organisations; flying training institutes; and technical training institutes under the automatic route. Investments are subject to relevant regulations, approvals from DGCA and security and other conditions. Foreign airlines are also, henceforth, allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled Air Transport Services, up to the limit of 49% of their paid-up capital. Investments will be subject to government route.
Government Initiatives
Government agencies project that around 500 brownfield and greenfield airports would be required by 2020. The private sector is being encouraged to become actively involved in the construction of airports through different Public Private Partnership models, with substantial state support in terms of financing, concessional land allotment, tax holidays and other incentives.
In the Union Budget 2016-17, the government introduced various proposals for Maintenance, Repair and Overhaul (MRO) operations for airplanes. These include customs and excise duty exemption for tools and tool-kits used in MRO works. The government has also scrapped the one-year restriction for utilisation of duty free parts apart from allowing import of unserviceable parts by MROs for providing exchange. As per revised norms, the foreign aircraft brought in to India for MRO work would now be permitted to stay up to six months or as extended by aviation regulator Directorate General of Civil Aviation (DGCA). Such foreign aircraft would also be henceforth permitted to carry passengers in the flights at the start and end of its period of stay in India.
Some major initiatives undertaken by the government are:
- Airports Authority of India (AAI) plans to develop city-side infrastructure at 13 regional airports across India, with help from private players for building of hotels, carparks and other facilities, and thereby boost its non-aeronautical revenues.
- Directorate General of Civil Aviation (DGCA), India’s aviation regulator, has signed an agreement with United States Technical Development Agency (USTDA) for India Aviation Safety Technical Assistance Phase II, aimed at bringing in systemic improvements in the area of operation, airworthiness and licensing.
- The Government of India has given site clearance to Delhi Mumbai Industrial Corridor and Development Corporation (DMICDC) for setting up of a Greenfield Airport for public use near Bhiwadi in Alwar district of Rajasthan and has granted ‘in-principle’ approval to 13 other greenfield airport projects.
- The Airports Authority of India (AAI) plans to revive and operationalise around 50 airports in India over the next 10 years to improve regional and remote air connectivity.
- The Government of India, in its draft civil aviation policy released for inputs from stakeholders, has proposed raising Foreign Direct Investment (FDI) limit in domestic airlines from the current 49 per cent to over 50 per cent, along with other reforms such as tax incentives for airlines, incentives for travellers to fly to small towns at affordable rates, and easing the norms for domestic carriers to operate abroad.
- Gujarat is expected to get a second international airport at Dholera. The state government has formed Dholera International Airport Co. Ltd. and is obtaining approvals from the union government.
- The Directorate General of Civil Aviation (DGCA) has given its approval to Air India’s maintenance, repair and overhaul (MRO) unit.
- The Government of India has decided to award airports in Kolkata, Chennai, Jaipur and Ahmedabad on management contract. AAI has issued the ‘Request for Qualification’ document for these four airports.
Road Ahead
India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class. The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2020 and the largest by 2030.