Impact of National Civil Aviation Policy on Indian

Civil Aviation Industry

Bharath.S Angel Chakraborty

Assistant Professor Assistant Professor
Dept. Of MBA Dept. Of MBA
Brindavan College Brindavan College
Email ID: Email ID:
bharath15889@gmail.com angel.chakraborty@gmail.com

Abstract
The cornerstones of the new policy are competition, consumers, connectivity and investment
(both domestic and foreign). Its vision is to make flying affordable, transparent and convenient.
Also it should pave for significant growth in the civil aviation sector. The new policy has
allowed the airlines to handle ground operations themselves. Earlier, airlines approached courts
against orders that required them to outsource their ground handling operations. A target fare of
Rs. 2500 for one hour flight would help middle class passengers which is aimed towards greater
affordability and convenience. Also how the fiscal incentives provided for the Manufacture,
Repair and Overhaul (MRO) sector is a big positive.
Keywords

Aviation, National Civil Aviation Policy, fleet, VGF, RCS, RDG, SCA

Introduction and features of the policy

After the Indian independence the Government of India has implemented National Civil
Aviation Policy for the first time which changed the regional aviation industry. The main reason
for implementing of this policy is to capped airfares on un-served regional routes to push
regional connectivity and making flying more affordable to the masses.

Elimination of 5/20 rule

The government has removed the 5/20 rule. The 5/20 rule was introduced during the UPA
regime. According to the rule, only local airlines having a fleet of minimum 20 aircrafts with at
least five years of operational experience are allowed to fly overseas. This rule has now been
replaced with a new rule that offers a level playing field. Now, the airlines can fly overseas if
they have a fleet size of 20 aircrafts or 20% of the total seat capacity in term of average number
of seats on all departures put together, whichever is higher for domestic operations.

Regional connectivity scheme (RCS)

The scheme seeks to connect unconnected towns with the help of Viability gap funding (VGF).
The scheme proposes to offer concessions to the airlines to encourage them to fly on regional
 routes. The central government will fund 80% of the losses incurred by the airlines by flying on
regional routes. The rest of the loss will be covered by the states. The states will also incentivize
the airlines in the form of lower excise duty at 2% and VAT at 1% on aviation turbine fuel at
RCS airports. RCS will be implemented only in those states which reduce VAT on ATF to 1%
or less and offer other support services and 20% of VGF.

 The VGF will be funded by charging a cess per departure on domestic flights at a rate
decided by the aviation ministry from time to time. The VGF will be shared between the
aviation ministry and the states in the ratio of 80:20. In case of the North-Eastern States the
ratio will be 90:10. 

 The government has proposed a cap of Rs 2500 for an hour’s flight on regional routes to
Tier 2 and Tier 3 cities. 

 The government also proposes to exempt airlines from all landing, parking and other
charges on the RCS airports. 
Single Window clearance
The DGCA will create a single window for all aviation related transactions, complaints,
queries etc.
Safety
DGCA proposes to ensure real-time tracking and immediate incident reporting.
Route Dispersal Guidelines (RDG)
The new policy contains measures to rationalize RDG. Also, the Ministry of civil aviation will
review routes under different categories once every 5 years after its first revision in 2016. RDG
was introduced in 1994 to provide air connectivity to Jammu and Kashmir, North East Region,
Andaman& Nicobar Islands, Lakshadweep, Tier-2 and Tier-3 cities, by way of internal cross-
subsidy by airlines using their revenues on the Trunk Routes (12 in number). RDG has
succeeded in creating connectivity to remote locations.

Bilateral Traffic rights

The government has plans to liberalize bilateral rights. This will lead to greater ease of doing
business and will offer wider choice to passengers. The policy provides for ‘Open Sky’ air
service agreements
(ASA) on a reciprocal basis with SAARC countries and those countries located beyond 5000
km from Delhi. Open Sky agreements allows airlines from two countries to operate an
unlimited number of flights to each other.
Ground Handling Policy
The Ground Handling policy will be replaced by a new framework. All domestic scheduled
Indian carriers as well as helicopter operators will be allowed to deploy their employs for self-
handling at all airports.
Airports/ PPP
The new policy aims to encourage the development of airports by state governments, AAI,
private sector through PPP mode. For future airports, tariffs will be calculated on a ‘hybrid till
‘basis. Under this model, airport charges will be levied based on an airline’s aeronautical
revenue and part of its non-aeronautical revenue.
Aviation security, Immigration and customs
‘Service delivery modules’ will be developed for aviation security, Immigration, Customs in
consultation with the concerned ministries. Use of private security agencies will be encouraged
at airports for non-core security operations in consultation with home ministry.
Helicopters
Separate regulations for helicopters will be notified by the Director General of Civil Aviation
(DGCA). Helicopters will be allowed to fly freely without prior ATC clearance below 5000 feet
as well as in airspaces which are not controlled/prohibited/restricted. Also, the airport charges
for the helicopters will be rationalized.
Maintenance, Repair and Overhaul (MRO)
The new policy aims to give a push to this sector. The MRO business of the Indian carriers is
estimated to be around Rs 5000 crore. But 90% is currently spent outside India. The
government will make provisions for suitable incentives for MRO activities and service
providers. The budget 2016-17 has also rationalized custom duty and simplified the procedure
for clearance of goods.
Education and skill building
To make some 8,000 unemployed pilots holding commercial pilots (CPL) get better
employment opportunities, the Ministry of Civil Aviation will develop a scheme for Type-
rating (training on specific type of aircraft) along with budgetary support on planes like Airbus
A320s and Boeing 737s. The ministry will also give full support to the Aviation Sector Skill
Council and other agencies for imparting skills. It is estimated that the direct additional
employment requirement of the Civil Aviation Sector will be 3.3 lakh by 2025.
Scheduled Commuter Airlines (SCA)
The new policy has also proposed to promote a new category of airlines to boost remote
connectivity called the Scheduled Commuter Airlines (SCA. These are essentially lower
capacity carriers connecting remote locations. These are also expected to be low cost carriers as
they would benefit from probable relaxed guidelines, fiscal support and subsidy support.

Objectives
1. To Study the impact of Government support for flying on regional routes.
2. To understand how International flying norms made easier for new airlines.
3. To Study the impact of Lower airport and other charges as well as enhance higher safety
standards.
4. To study how it can improve regional connectivity. A target fare of Rs. 2500 for one
hour flight would help middle class passengers.
5. To study the RCS scheme to boost the performance of many airports.
6. To study how it can impact ease of doing business in India.
7. To study how hybrid till model for developing airports may end uncertainty and
promote investment.

Literature review
In a research report of Edelweiss says, "The regional connectivity scheme augers well for
players like SpiceJet, though dilution of the 5/20 rule will undoubtedly heighten competitive
intensity in the international market over medium to long term for the incumbents."
Ratings agency CRISIL feels that the new aviation policy has potential to level the runway.
"However, further clarity on regional connectivity is awaited. Also, the policy does not dwell
on the long-pending structural issue of high sales tax on aviation turbine fuel (ATF), which
diminishes the attractiveness of the sector," it says.

Research Methodology
A research design is a framework or blueprint for conducting the research project. It details the
procedure necessary for obtaining the information needed to structure or solve marketing
research problem. This research was based on secondary data and conceptual analysis. In this
research DESCRIPTIVE DESIGN is used to describe the market characteristics or features and
functions of the market in detail. This research design is marked by the prior formulation of
specific hypotheses. This research design is very pre-planned and structured. Non Probability
sampling techniques were used due to time constraints. Nominal scale is used for labeling and
description.

Findings
1. The policy is silent on the future roadmap for the state run Air India and the way forward
for that airline.
2. The policy and its reforms raised expectations on increased FDI inflows in the aviation
industry.
3. The Policy has given boost to privatization and commercialization of Indian domestic and
International Aviation Sector.
4. The policy helped reduce fairs for middle class customers and made it more transparent.
5. Although there is no word about removing the sales tax on ATF and other taxation
measures levied on Indian carriers.
6. The regional aviation policy is well-positioned, but expecting private capital to flow to loss-
making projects remains elusive. The regional aviation policy unveiled by the previous
government with incentives like 4% sales tax on ATF and no landing/ parking charges could
not achieve the expected progress. Experts feel that the policy is too difficult to implement.
7. Although, the government has moved to 0/20 from the 5/20 rule in international flying, the
new flying criteria is not likely to help new airlines like Vistara and AirAsia India, as these
carriers are not in a position to fast track expansion owing to a resource crunch. They have
already exhausted the initial capitalization and may take around three to four years to build
a capacity of 20 aircraft.
8. To make some 8,000 unemployed pilots holding commercial pilots (CPL) get better
employment opportunities.
9. The new civil aviation policy draft reflects a more liberal regime and a pro-growth
approach.
Conclusions
Aviation experts want the government to separate Air Navigation Services from the AAI and
establish it as an independent, professional body. They also feel the policy has lots of ifs and
buts involved. They want the policy to be coherent, fair, equitable and implementable. In
addition, the industry stakeholders have to actively engage with the policy makers to implement
the rational decisions to boost the growth of civil aviation sector.
Even with 40% upwardly mobile middle class, India’s aviation industry remains largely
untapped with promising potential. Air transport is still expensive for the majority of country’s
population. Framing right policies with special focus on quality, cost and passenger interest can
make India to achieve its vision of becoming the third largest civil aviation market by 2020 and
largest by 2030.

References
  Press information bureau government of India Ministry of Civil Aviation June 15, 2016. 
  http://airlines.iata.org 
  www.civilaviation.gov.in/ 
 The India Express June 15, 2016. 

  Money life news and views June 16, 2016. 
 Integrated IAS general studies by 
GK Today June 4, 2017.