Radical reforms needed to transform India's aviation industry

Published: Monday, September 19, 2016

The Bharatiya Janata Party (BJP) pledged in 2014 to give importance to regional connectivity not only to move people and goods seamlessly but also to ensure regional parity.

Two years on into power, the BJP-led government instituted a slew of reforms designed for economic development and the aviation industry is one of those seeing radical reforms.

In June and July of this year, the government announced the new National Civil Aviation Policy and subsequently, the introduction of the Regional Connectivity Scheme (RCS). Both are designed to create an eco-system for aviation to flourish.

The move affirms the government’s realization that the aviation sector has a multiplier effect on India’s economic growth.

The International Civil Aviation Organisation (ICAO) pointed out in its recent study, aviation has an output multiplier and employment multiplier of 3.25 and 6.10 percent, respectively.

Recognizing this, the Indian gover-nment said it intends to create an ecosystem for the harmonised growth of various aviation subsectors —airlines, airports, cargo, main-tenance, repairs and overhaul (MRO), general aviation, aerospace manuf-acturing, skill development, among other areas.

10 million tons by 2027

The Indian government envisions flying within and outside of the country affordable to the public.
Domestic ticketing is targeted to reach 300 million by 2022 and 500 million by 2027. International ticketing is hoped to increase to 20 million by 2027.

Similarly, cargo volumes have been pegged to increase to 10 million tonnes by 2027, in a safe, secure, affordable and sustainable manner.

The safe air travel for passengers and air transportation of cargo, with access to various parts of India and the world, are all being mapped out in the future.

Slew of incentives.

In line with this vision, the government has announced a slew of incentives. For instance, air freighters will be entitled to the following at RCS airports up to 10 years from the date of commencement of cargo operations:
No airport charges levied for operations under RCS.

Terminal navigation and landing charges (TNLC) shall be waived and route navigation and facilitation charges (RNFC) will be levied on a nominal basis

Excise Duty on aviation turbine fuel (ATF) drawn by cargo operators from the RCS airports shall be at the rate of 2% for a period of 3 years from the date of notification

However, cargo operators will not be entitled to viability gap funding (VGF) which is for regional airlines

Air cargo, which has been neglected by both the government and the industry, is now finally being given priority.
The government said the promotion of both domestic and international air cargo and express delivery services will be given importance from a ‘Make in India’, e-Commerce and exports perspective.

Recognising that revenue from air cargo helps airlines subsidize the cost of passenger tickets, the government is working out ways to promote air cargo, particularly, domestic air cargo as it has a high employment potential too, especially for semi-skilled workers.

Currently air cargo volumes in India are very low compared to other leading countries due to high charges and high turnaround time.

Within the air cargo ecosystem, Express Delivery Services (EDS) has a distinct operational nature and is becoming pivotal especially in the light of double digit growth in e-commerce.

Cargo facilities at airports

Accordingly, the policy has laid out a framework which is expected to ensure growth of air cargo business:
a) Cargo facilities co-located at an airport are covered under the ‘Harmonised List of Infrastructure’ and will get the benefit of ‘infrastructure’ sector.

b) The Ministry of Civil Aviation has constituted the Air Cargo Logistics Promotion Board (ACLPB) to promote growth in air cargo by way of cost reduction, efficiency improvement and better inter-ministerial coordination.

Dwell-time reduction

The board and the industry will submit a detailed action plan after stakeholder consultation with the objective of reducing dwell time of air cargo from ‘aircraft to truck’ to below 48 hours by December 31, 2016 and to 24 hours by December 31, 2017 by reducing the free time and implementing other measures.

For exports, dwell time will be reduced to 12 hours by December 31, 2016 and 8 hours by December 31, 2017.

Air cargo community system

The action plan proposed by ACLPB will be forwarded to Central Customs Coordination Committee (CCFC) to streamline and simplify Customs procedures and ensure a shift to paper-less air-cargo processing through use of digital signatures for transmission of messages.

The Board will chalk out an action plan for this by April 1, 2017. The Board will develop non-legal and indicative service delivery modules after extensive consultations with stakeholders for all elements of the air cargo express cargo value chain such as – airlines, airports, terminal operators, Customs House Agents (CHA), freight forwarders, and government agencies like Customs, Central Industrial Security Force (CISF), quarantine officers etc.

An air cargo community system will also be constituted to avoid delays.

It has declared that it would implement the Advance Cargo Information (ACI) system in a phased manner after a universally accepted international template has emerged. This will help in faster processing.

Trans-shipment at airports

The Ministry of Civil Aviation (MoCA) has plans to leverage the untapped trans-shipment opportunity.

The ACLPB will propose specific action steps to promote trans-shipment at Indian airports and the same will be monitored by MoCA.

Free trade and warehousing zones (FTWZ) will be set up to facilitate transhipment cargo.

The space allocated for cargo on the air-side and city side at most Indian airports is inadequate. The board will recommend norms for space allocation for air-cargo, including express cargo for all Greenfield airports.

The action plan for space-augmentation at existing airports will be developed by ACLPB on a case by case basis in consultation with stakeholders.

Single window system

The government will endeavour that all relevant central government authorities are available through a single window at the cargo terminals. These include customs, wild life clearance, drug controller, plant and animal quarantine, archaeological survey of India, etc.

Clearances will be given promptly and online after necessary checks through a single window system. The government has commenced 24×7 Customs operations at several airports.

However, the industry hasn’t fully utilized this.

The ACLPB says it will work closely with industry and propose steps to spread out cargo handling round-the-clock, including provision of adequate manpower.

The suggestions/recommendations of ACLPB will be placed before the Central CCFC for appropriate action.

The ACLPB will promote global good practices like FTWZ, Air Freight Stations, bonded trucking, dedicated cargo airports etc. Freighter aircraft suffer from low priority accorded in terms of time slots and parking bays. ACLPB will recommend norms to address the issue.

The ACLPB will work with AERA (Airports Economic Regulatory Authority) and Airport operators and recommend user charges which are competitive vis-a-vis competing aviation hubs. In particular for the non-metro airports, the lease and other fixed charges levied by AAI on cargo facility will be kept low so that it does not become an entry barrier.

10-year lease at airports

Airport operators will be encouraged to provide space for at least a 10-year lease to operators of express cargo freighters who may then develop dedicated infrastructure to improve their operational efficiency. Besides, the Ministry said it will encourage development of cargo-villages near airport

The air cargo industry in India has welcomed the policy which it expects will give the necessary status to the segment, neglected till date.

The former President of the Air Cargo Agents Association of India, Bharat Thakkar, told Air Cargo Update the connectivity of global markets has never been felt in a more pronounced manner than today.

He said “there was a need for a comprehensive investor-friendly aviation policy with priority to create a competitive revenue model of the civil aviation sector aligning with global standards. The government has done that now to make India an attractive market for investors.”

With specific reference to the air cargo sector, Mr. Thakkar said the NCAP has given adequate importance.
There were several positives – simplification of Customs procedures; Single window system; development of cargo villages; promoting global best practices; setting up of free trade warehousing zones, air freight stations; reduction of dwell time for cargo etc.

Challenges ahead

The official said there are just too many challenges ahead but the reforms instituted so far already signal a good start.

“There is no doubt that the first impression of a country is at the airports, but it is the cargo facility which gives economic strength to a nation,” Mr. Thakkar said, adding that the government has realised this and is investing in infrastructure development and state-of-the art technologies to accelerate development.

A major challenge for the air cargo sector was the availability of skilled workforce which is in short supply.

Mr. Thakkar pointed out that efforts should be made to enhance skill development in the air cargo sector as it had potential or large scale employment creation.

“The explosive growth in the logistics sector has created a dearth of experienced talent. We hope that the Task Force for Skill Development will take note of it and address the needs of various sectors,” he said.

While applauding the government for the initiatives, he said it was time that the cargo and logistics industry in India got ‘industry’ status. “We expect cargo growth to be faster than in the past and contribute substantially to India’s emergence as a major economic power.”