The Indian civil aviation industry is on a high growth trajectory, albeit with minor hiccups.
India has a vision of becoming the third largest aviation market by 2020 and is expected to be
the largest by 2030.
Despite facing a reduced growth rate in the past few years, the Civil Aviation Industry in India
has ushered in a new era of expansion driven by factors such as Low Cost Carriers (LCC),
modern airports, Foreign Direct Investments (FDI) in domestic airlines, cutting edge
Information Technology (IT) interventions and a growing emphasis on regional connectivity.
Simply going by the market size, the Indian civil aviation industry amongst the top 10 in the
world with a size of around USD 16 billion.
However, in order to achieve the vision of becoming the third largest aviation market by 2020,
a lot more needs to be done.
The Asia Pacific region along with other emerging economies of Latin America and Eastern
Europe are projected to lead the growth of the global aviation sector in the next few decades.
Steady economic development of China and India would lead to higher spending power and
increased need to travel. With one third of the world's population residing in these two nations,
there is a huge untapped potential. As per the 12th Five Year Plan (2012-2017), improving air
connectivity in tier-2 and tier-3 cities in India is one of the key priorities of the government.
This expansion will not only add a much needed boost to the industry, but also increase the
viability of new trends like low cost airports and airlines in the country. With the unfortunate
downgrade of India to Category 2 by USA's Federal Aviation Administration (FAA), expansion
in the global routes may be constrained. That too will lead to greater focus on the domestic
market in the short run. All this will have a multiplier effect in terms of higher growth of local
economic activities, tourism and employment.
India sells one of the costliest Aviation Turbine Fuel (ATF) in the world, nearly 60% costlier
than competing nations in the Middle East and ASEAN regions. This is thanks to myopic tax
policies at the central and state level. The raw material - ATF – accounts for nearly half of the
operating cost of Indian carriers. This explains why domestic flight tickets in India are often
costlier than a 3 days weekend package in Thailand and Malaysia' No wonder tourism traffic
in India is a fraction of its immense God-gifted potential.
Executive Summary5
The irony is that the common man in whose name high taxes are imposed on ATF, is himself
prevented from flying due to high travel costs! According to a rough estimate, nearly 99.5
percent of the world's third largest economy, have NOT seen the insides of an aircraft. Most
Indian carriers therefore are facing financial ruin and are hoping for a white knight to bail them
out.
Some recent initiatives such as allowing import of ATF are a step in the right direction but
more proactive measures are needed in order to make industry more competitive and investor
friendly. The positive Indian airlines are slowly becoming evident. Removal of unwritten ban
on A380s will help bring down cost of travel and increase tourist arrivals. The 5/20 rule and
other regulatory other hurdles in approval of new airlines and import of aircraft need to be
abolished at the earliest.
The regulatory regime governing Maintenance, Repair and overhaul (MRO) of aircrafts is
another classic case of tax and procedural overkill. Not a single commercial aircrafts of Indian
carriers undergoes repairs in India. Empty aircrafts are flown to MRO facilities in our
neighboring countries and paid for in foreign exchange. The loss of revenue, foreign exchange,
employment and direct taxes is immense. All this is thanks to the short-sighted policies
regarding indirect taxes (service Tax and VAT) and cumbersome customs procedures regarding
import of aircraft parts and consumables.
With the growth of air traffic in the region, focused efforts to upgrade the Air Navigation
Services (ANS) has become imperative. Segregation or ANS directorate from Airport
Authority of India (AAI) into a world class organization with latest infrastructure and well
trained professionals is key. Government is expected to decide on the matter soon.
In pursuit of becoming a strong aviation player; India perhaps did not put the right emphasis
on development of human capital and regulatory frameworks. The FFA downgrade has been
fallout of the same. India needs to put its act together to address these issues. The creation of a
financially and operationally independent Civil Aviation Authority (CAA) and the National
Aviation University (NAU) need to be undertaken on a war footing.
There is a large untapped potential growth in the Indian Aviation industry due to the fact that
access to aviation is still a dream for nearly 99.5 percent of its large population, nearly 40
percent of which is the upwardly mobile middle class. It is critical for the industry stakeholders
to engage and collaborate with policy makers to come up with efficient and rational decision
that will shape the future of Indian Civil Aviation Industry. With right policies and a 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.
The Indian civil aviation industry is on a high growth trajectory, albeit with minor hiccups.
India has a vision of becoming the third largest aviation market by 2020 and is expected to be
the largest by 2030.
Despite facing a reduced growth rate in the past few years, the Civil Aviation Industry in India
has ushered in a new era of expansion driven by factors such as Low Cost Carriers (LCC),
modern airports, Foreign Direct Investments (FDI) in domestic airlines, cutting edge
Information Technology (IT) interventions and a growing emphasis on regional connectivity.
Simply going by the market size, the Indian civil aviation industry amongst the top 10 in the
world with a size of around USD 16 billion.
However, in order to achieve the vision of becoming the third largest aviation market by 2020,
a lot more needs to be done.
The Asia Pacific region along with other emerging economies of Latin America and Eastern
Europe are projected to lead the growth of the global aviation sector in the next few decades.
Steady economic development of China and India would lead to higher spending power and
increased need to travel. With one third of the world's population residing in these two nations,
there is a huge untapped potential. As per the 12th Five Year Plan (2012-2017), improving air
connectivity in tier-2 and tier-3 cities in India is one of the key priorities of the government.
This expansion will not only add a much needed boost to the industry, but also increase the
viability of new trends like low cost airports and airlines in the country. With the unfortunate
downgrade of India to Category 2 by USA's Federal Aviation Administration (FAA), expansion
in the global routes may be constrained. That too will lead to greater focus on the domestic
market in the short run. All this will have a multiplier effect in terms of higher growth of local
economic activities, tourism and employment.
India sells one of the costliest Aviation Turbine Fuel (ATF) in the world, nearly 60% costlier
than competing nations in the Middle East and ASEAN regions. This is thanks to myopic tax
policies at the central and state level. The raw material - ATF – accounts for nearly half of the
operating cost of Indian carriers. This explains why domestic flight tickets in India are often
costlier than a 3 days weekend package in Thailand and Malaysia' No wonder tourism traffic
in India is a fraction of its immense God-gifted potential.
Executive Summary5
The irony is that the common man in whose name high taxes are imposed on ATF, is himself
prevented from flying due to high travel costs! According to a rough estimate, nearly 99.5
percent of the world's third largest economy, have NOT seen the insides of an aircraft. Most
Indian carriers therefore are facing financial ruin and are hoping for a white knight to bail them
out.
Some recent initiatives such as allowing import of ATF are a step in the right direction but
more proactive measures are needed in order to make industry more competitive and investor
friendly. The positive Indian airlines are slowly becoming evident. Removal of unwritten ban
on A380s will help bring down cost of travel and increase tourist arrivals. The 5/20 rule and
other regulatory other hurdles in approval of new airlines and import of aircraft need to be
abolished at the earliest.
The regulatory regime governing Maintenance, Repair and overhaul (MRO) of aircrafts is
another classic case of tax and procedural overkill. Not a single commercial aircrafts of Indian
carriers undergoes repairs in India. Empty aircrafts are flown to MRO facilities in our
neighboring countries and paid for in foreign exchange. The loss of revenue, foreign exchange,
employment and direct taxes is immense. All this is thanks to the short-sighted policies
regarding indirect taxes (service Tax and VAT) and cumbersome customs procedures regarding
import of aircraft parts and consumables.
With the growth of air traffic in the region, focused efforts to upgrade the Air Navigation
Services (ANS) has become imperative. Segregation or ANS directorate from Airport
Authority of India (AAI) into a world class organization with latest infrastructure and well
trained professionals is key. Government is expected to decide on the matter soon.
In pursuit of becoming a strong aviation player; India perhaps did not put the right emphasis
on development of human capital and regulatory frameworks. The FFA downgrade has been
fallout of the same. India needs to put its act together to address these issues. The creation of a
financially and operationally independent Civil Aviation Authority (CAA) and the National
Aviation University (NAU) need to be undertaken on a war footing.
There is a large untapped potential growth in the Indian Aviation industry due to the fact that
access to aviation is still a dream for nearly 99.5 percent of its large population, nearly 40
percent of which is the upwardly mobile middle class. It is critical for the industry stakeholders
to engage and collaborate with policy makers to come up with efficient and rational decision
that will shape the future of Indian Civil Aviation Industry. With right policies and a 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.
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