As in the case of Indian sea ports, there is a mismatch between the growing freight and passenger market and the infrastructure constraints in India’s domestic and international airports.
With annual passenger growth of 20% over the last four years and India now amongst the top 30 global freight markets, this mismatch contributes to wasteful costs and loss of time to the aviation sector.
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International air cargo traffic grew by 15.6% during the last four years and constitutes nearly 65% of the total cargo handled at all Indian airports.
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A recent World Air Cargo forecast places the Indian air cargo traffic in tonnage at 3.9% of the world’s total traffic.
This growth is a result of the deregulation and liberalization of the Indian economy coupled with the Open Skies Policy and a move to allow private operators to participate in air traffic and passenger carriage.
Further, with a view to decongest the existing infrastructure to meet growing demand and air safety requirements, the Indian government revised and notified the enhanced foreign direct investment (FDI) limits for entry into the sector on 12 March 2008.
More investment
Maximum FDI in the field of aircraft maintenance, repair and overhaul operations, helicopter and sea plane services and flight training institutes has been raised from 49% to 100%.
Similarly, for ground handling services, FDI up to 74% and up to 100% investment by non-resident Indians (NRIs) is now allowed under the automatic route, subject to security clearance.
This should help lower costs by allowing for competitive escorting services at these airports such as communication, landing and other support services that meet International Civil Aviation Organization (ICAO) safety norms, similar to services available at low cost airports around the world.
Further, FDI of up to 49% and 100% investment by NRIs is allowed under the automatic route in scheduled air transport service and domestic scheduled passenger airlines.
In non-scheduled air transport services, non-scheduled airlines, chartered airlines and cargo airlines, FDI of up to 74% and NRI investment of up to 100% is allowed under the automatic route.
New heights
A major initiative that would take the country’s aviation sector to new heights was the successful testing of the various aspects of the prestigious GAGAN project, a satellite based navigation system that would manage air traffic even over oceans around India.
The government has also enhanced the powers of the Directorate General of Civil Aviation (DGCA) after amending the Aircraft Act to empower the regulatory body to license air traffic controllers.
Hyderabad’s new international airport and the expansion of the Mumbai and Delhi airports meet international standards.
Further, the Airports Authority of India (AAI) has drawn up a master plan to upgrade 70 airports in India.
However, while increases in the limits of FDI for escorting and other air transport services is a move in the right direction, it falls short of some basic requirements, since air navigation services like communication and air traffic control are still monopolized by the AAI. The standards of these services as set out by the DGCA are under strain even in the major international airports due to a drastic increase in air traffic.
Healthy competition
Air navigation services have to be brought under competition to ensure their effective modernization as well as availability in time at the existing airports and those being upgraded.
Further, there should be a single airport regulator that can overview the activities of all the players and stakeholders in the sector through transparent and well defined policies and regulations – an authority similar to the Telecommunications Regulatory Authority of India in the telecoms sector.
The year 2007-08 has been a mixed bag for the Indian aviation industry with a number of good initiatives that propelled the sector even though airlines struggled to maintain profitability.
The Indian aviation industry is emerging as one of the fastest growing in the world, both in terms of passenger and cargo traffic.
Since India is emerging as one of the favourable destinations for the outsourcing of manufactured products, it will provide an excellent opportunity to the air cargo industry to airlift the high value items.
In view of the expected annual growth of about 9% in the GDP during 11th Five Year Plan, burgeoning international trade and e-commerce development, India’s air cargo market is looking to make a big stride forward over the next few years.
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Shardul Thacker is a partner with Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.
Mulla & Mulla & Craigie Blunt & Caroe
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