'0/20' In New Aviation Policy Not perfect, But Much Better Than '5/20'

Published: June 16, 2016 18:53 IST
The Cabinet's nod on Wednesday for the much-awaited National Civil Aviation Policy marks the culmination of a detailed stakeholder consultation process and represents India's first comprehensive civil aviation plan, a commendable step.

After a very difficult first half of this decade, record growth figures for 2015 may be the harbinger of a growth cycle that will make the Indian civil aviation sector the world's third largest in the short term, and may be even bigger in the years to come.  

Against this backdrop, an 'all inclusive' and 'pro-growth' policy that not only seeks to address identified hurdles but also aims to unlock unexplored potential, could not have come a moment sooner.  The policy has something for everyone and, for the most part, does not disappoint. 

Rolling back the counter-productive "5/20" rule is a clear highlight. Under the "5/20" rule, start-up Indian carriers like IndiGo were compelled to battle various constraints on competitive domestic routes for five years before they were permitted to access the relatively lucrative international routes. On the other hand, international carriers of similar vintage - say FlyDubai - were allowed to immediately tap into these profitable India-centric international routes.  

At a time when they were already grappling with astronomical fuel prices and a fast depreciating Rupee, this often criticized rule hobbled India's private carriers and created an unequal playing field.

The new "0/20" rules does away with the five-year requirement, but carriers will still need to demonstrate a fleet of 20 aircraft (or deploy 20% of total capacity on domestic routes). Some may argue that this represents an implied waiting period as it normally takes a few years for a new carrier to ramp-up its fleet.  

In summary, the new "0/20" rule is not perfect, but it is certainly an improvement. The government has had to balance competing views of older carriers like SpiceJet, Jet Airways, etc and the aspirations of prospective beneficiaries like the newer AirAsia and Vistara, and the policy evidences the government's resolve to look ahead. In the long run this will strengthen the Indian carrier/airline eco-system, which will have a positive impact on pricing, accessibility, job creation, etc.   

The other highlights revolve around enhancing regional connectivity and making "flying" more inclusive and affordable. The intention is to revitalize existing unused infrastructure and create new infrastructure while incentivizing regional connectivity. This is aligned with the aspirations of India's burgeoning middle class, especially those living in tier 3 and 4 cities.  

Regional air connectively also has the potential of speedily bridging existing gaps in infrastructure, and this policy can be used to give an immediate fillip to relatively inaccessible regions (while other infrastructure, such as high speed rail, is developed).  

Linked to the consumer-oriented theme, the policy has announced a cap on certain air fares and cancellation fees. Carriers, on the other hand, will need to expedite refunds and potentially pay higher cancellation compensation. The consumer is, after all, the king.

The policy also has a few useful and interesting points for different civil aviation sub-sectors and stakeholders, such as maintenance providers, charter operators, ground handlers and the like. While the devil will lie in the detail of some of these policy statements, these are all, in principle, welcomed.

Although the policy is largely a positive statement of intent, most of the tangible benefits and steps emanating from it will require statutory amendments, changes in the tax regime, creation of enabling regulatory provisions and the unveiling of specific initiatives. This is, therefore, a good first step, but real challenge lies ahead.  

A number of infrastructure related aspects of the policy, especially relating to the regional connectivity theme (e.g. viability gap funding), will also require a significant funding commitment - future budgetary allocations will be a good indicator of the government's seriousness to implement the policy.

It also envisages private sector participation and to this end, the government will need to formulate a clear and stable view on privatization in the context of this sector - so far privatization initiatives have had mixed results and response.

For the policy to work further government intervention and cooperation among various stakeholders will be needed - a reality that, judging by his tweets, is not lost on the Civil Aviation Minister.  

Often the best "policy intentions" are lost or diluted by the time change is executed on the ground and even in this case there is the danger of competing interests, conflicting priorities and other ground realities impeding the implementation of the policy.  

Let us hope that matters don't get bogged down in interpretational issues and legislative quagmire, so that we - the consumers - can start receiving dividends of the policy as soon as possible.

(Dhruv Paul is a corporate lawyer focused on the aviation sector and works in Clyde & Co LLP. He can be contacted at dhruvpaul@gmail.com)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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