Indian Civil Aviation Industry: Development and Growth
The Indian Civil Aviation Industry is the world’s 3rd largest domestic civil aviation market and has been moving along an upward-sloping locus since its inception. The aviation industry is supported by 153 airports, 1000+ aircraft fleets, and 1.5 million personnel. Research conducted by Oxford Economics values the civil aviation industry at approximately 0.5% of Indian GDP and the FDI inflow into the air travel and air freight category accounts for about 0.6% of total FDI, pouring USD 3.54 billion of FDI into the economy. Over and above this, the civil aviation industry has been the backbone of international rescue and evacuation operations like the recent Vande Bharat mission held to rescue and evacuate Indians from foreign countries during the COVID-19 pandemic.
The civil aviation industry supports multiple other sectors of the economy ranging from labor and goods transport to tourism. The Civil Aviation industry in India is one of the factors helping in driving the overall economic growth in the country while also growing in size itself. The present budget outlay of Rs. 10,667 crores is a lumpsum offered for both maintaining the present industry standard in India and the prospects to offer growth along all parameters. The government has presented the outlay with a heavy emphasis on capital expenditure due to the government’s focus on facilitating air travel, air cargo, and building an integrated trilateral air-water-land transport network. These developments have also been made in congruence with the increasing confluence of international markets and interest in India. The presence of a better civil aviation network helps in drawing and attracting international and cross-regional investments. The importance of civil aviation in economic growth is indisputable and beyond any question.
There are multiple reasons for the enhanced growth of the Civil Aviation sector in India. The growth of Express Industries has contributed to the rapid growth of the Civil Aviation sector, as demand for faster and more efficient delivery solutions has driven the demand for air cargo and air freight as the time compensation often heavily outruns the additional costs of such services. The opportunity cost analysis more often weighs a faster delivery service over the relatively higher costs for a longer run.Secondly, the rising domestic GDP indicates an overall rise in per capita and business income leading to an increase in business travel for professionals and more demand for leisure tourism by individuals. There has been an expansion in migration due to the tendency of people to move to a Tier-1 to attract lucrative salaries, better growth opportunities, better career development, and/or better education. Given the Indian Civil Aviation spans across Tier-1,2,3 cities, the increase in migration has fuelled the growth of civil aviation to a large extent.
Over and above the demographic and business quotient, the growth of investment in the Aviation sector is also credited to the exponential rise in investment by government and private entities. This unprecedented increase in investment from the government and the private sector can be attributed to the fact that there is a mass potential of revenue that can be generated via the monetization and commercialization of Aviation assets. The government has recently auctioned the rights of airports to corporate houses for operating the airports for 50 years which reduces the liability of the government to uptake the monetarily painstaking problem of issues such as depreciation and maintenance. This has also incentivized the private sector to hop on and contribute to the development of the aviation sector. Further, Increased FDI and Capital Expenditure in the aviation sector adds a lot to the potential of the various facets of the sector.
Further, the growth of Civil Aviation traffic in India can be attributed to the diplomatic, economic, and political convergence of Eco-Political power in the Indo-Pacific. Recently, the Indo-Pacific zone has gained international attention due to the centralization of power in the Asia-Pacific area as the Chinese power is growing in economic, political, and diplomatic terms. The alternative for the group opposing the dominative and assertive communist Chinese regime has found India to be a trusted, tested, and tried partner for ecopolitical relations. This has led India to acquire the central stage at global forums along with effective diplomacy. Such developments have led to better trade agreements, and economically viable and fruitful partnerships leading to increased movement of goods and professionals within the country (due to an increasing number of international firms entering India) and across borders.
Opportunities for Growth of Civil Aviation in India
In the recently concluded Budget session of the parliament Jayant Sinha, Minister of State for Civil Aviation has stated that Indian airports should have expectedly 855 million air passengers by Financial Year (FY) 2030-31 against 265 million in FY 2016-17. He further stated that the capacity of Indian Civil Aviation lies at 334 million passengers which would not be able to support the boom in air traffic in India. Further, The International Civil Aviation Organisation (ICAO) has said in a study that the global air traffic boom has an economic multiplier of 3 and an employment multiplier of 6.1, which presents an opportunity for growth for Indian Civil Aviation.
The market potential of aviation in India is humungous, most of which lies untapped. Presently, factors like access to air travel, and expensive Maintenance, Repairs, and Overhaul (MRO) Operations(MRO) are causing problems for the growth of Civil Aviation in India.
The airport concentration in India lies in very selective regions and multiple regions lie untouched. Some areas like North-East India have very limited air travel opportunities, which not only inhibits the growth of the aviation sector but also affects the tourism industry of these areas. Adding to these, the pricing of air travel is also quite arbitrary as observed by the house panel on civil aviation multiple times. Some sort of regulation needs to be brought in to check this practice by the airlines
Additionally, Maintenance, Repairs, and Overhaul (MRO) Operations for Aircraft Fleet are extremely expensive. The majority of goods required for the MRO sector of civil aviation are expensive along with the added cost of expensive skilled labor employed in this work which further inhibits the growth of this sub-category in the aviation sector. Some policy measures have been introduced to bring down the costs but the key requirement is to produce more in India rather than decrease customs and GST to bring down costs.
Policy Measures for improvement of the Civil Aviation Sector
India has always been a proponent of open skies and was one of the 52 founding signatories of the Chicago convention and the establishment of the International Civil Aviation Organization. Multiple schemes Like UDAN, Krishi UDAN, etc are being Introduced to catalyze growth in the Aviation sector while also making aviation affordable to the common man
Firstly, a major move to bring in Ude Desh ka Aam Nagrik (UDAN)/Regional Connectivity Scheme (RCS) Scheme to increase regional connectivity and make flying affordable to the common man has been introduced in 2016. The UDAN scheme was introduced by the central government to improve regional connectivity by upgrading, operationalizing, and constructing airports. The plan is to enhance overall aviation capacity by putting up operational airports with at least 3 to 7 flights every week. Further, the scheme aims to make air travel more affordable by offering multiple subsidies like a concession on service tax of air tickets, reduction of VAT/GST, no landing or parking charges, and a fixed set of UDAN-RCS fares to decrease the overall price for the common man while also maintaining the financial viability for the airline business.
Concessions on Maintenance, Repairs, and Overhaul (MRO) operations have been granted by the government to tap into the MRO market which is supposed to grow with a CAGR of 14-15% growing from the present $900 million to $4.5 billion by 2025. The slashing of GST for MRO services from 18% slab to 5% slab is supposed to incentivize the working of MRO in India and bring in services from around the world. Further an amendment in the “Place of Supply” destination to “Location of the recipient” has enabled the taxation to be categorized as an “export service” which would enable the MRO service operators abroad to sub-contract work to Indian MROs without paying extra tax.
An emphasis on the monetization of Aviation Assets has led to an increased interest in aviation by the private sector. The Airports Authority of India (AAI) has auctioned the operations, management, and development of 6 airports to monetize government assets and raise money for a period of 50 years which will lead to efficient management, reduced burden on the government treasury, and better development possibilities to airports.
The Production Linked Incentive (PLI) Scheme for Drones has also been introduced to tap into the increasing market potential in the new area of drone aviation. The PLI scheme has allocated Rs 120 crore in a span of 3 financial years to boost innovation and production in the drone sector, a new zone of Civil Aviation.The Krishi UDAN scheme has also been put forward to enable efficient national and international transportation of Agri-produce ranging from organic farming products to fishery and dairy products. The scheme is aimed at bettering the supply chain logistics of agri-business and boosting unconventional usage of aviation in the agri-sector.
The government has been extensively supportive to provide a conducive environment for the growth of the civil aviation industry and an aggressive route for the development of this sector has been taken since 2015. Since the inception of the airline industry in India, the Government of India has recognized this industry to be indispensable for the overall economic growth since the development of this sector not only brings about the development to civil aviation alone but also to multiple other allied industries and sectors. It is therefore pertinent to capitalize on the opportunities provided by the Aviation Sector of India to ensure the overall development of the Indian Economy and achieve the much desired goal of New India.
Research Intern at CPRG