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• What is the status of the Indian aviation industry, and how can the transition to a Public-Private Partnership (PPP) model in the Indian Airways sector be managed carefully to foster its growth and development?

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19-07-2023

Q: What is the status of the Indian aviation industry, and how can the transition to a Public-Private Partnership (PPP) model in the Indian Airways sector be managed carefully to foster its growth and development? (15 Marks, 250 Words)

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Answer :

The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India is expected to overtake China and the United States as the world’s third-largest air passenger market in the next ten years, by 2030.

Status of Indian Aviation Industry:

• Domestic traffic contributes around 69% of the total airline traffic in South Asia and India’s airport capacity is expected to handle 1 billion trips annually by 2023. 
• In FY22, airports in India pegged the domestic passenger traffic to reach 166.8 million, a 58.5% YoY increase, and international passenger traffic to reach 22.1 million, a 118% YoY increase, as compared to FY21.
• As of 2022, India had 131 operational airports. India has envisaged increasing the number of operational airports to 220 by 2025. The number of PPP airports is likely to increase from five in 2014 to 24 in 2024.
• According to DPIIT, FDI inflow in India’s air transport sector (including air freight) reached US$ 3.61 billion in FY 2022.

Initiatives by government to promote Aviation Industry:

• The government has allowed 100% FDI under the automatic route in scheduled air transport service, regional air transport service, and domestic scheduled passenger airlines.
• NABH (NextGen Airports for Bharat) – Nirman is a government initiative to expand airport capacity more than five times to handle billions of trips a year, in the next 10-15 years.
• AAI Startup Policy: Delivering a framework & mechanism for the interaction of AAI with internal and external stakeholders that catalyze innovation at airports and leveraging technology for addressing challenges and enhancing the delivery of services to passengers.
• UDAN-RCS scheme has been launched by the government which aims to increase air connectivity by providing affordable, economically viable, and profitable travel on regional routes.
• AAI and other Airport Developers have targeted a capital outlay of approximately Rs. 98,000 crores in the airport sector in the next five years.

Public-Private Partnerships (PPPs) in the Indian Airways sector offers several compelling reasons:

• Infusion of Capital: PPPs attract private investments, providing a significant source of funding for infrastructure development, modernization, and expansion of airports, airlines, and related services.
• Enhance operational efficiency: PPPs can bring private sector expertise, efficiency, and innovation to the aviation sector which will reduce costs and enhance overall efficiency.
• Risk Sharing: By engaging private partners, the risks associated with aviation projects can be shared. Private partners assume some of the financial and operational risks, relieving the burden on the government.
• Improved Service Quality: Private partners have incentives to deliver superior services, leading to enhanced facilities, better maintenance, shorter wait times, and improved passenger amenities.
• Employment Opportunities: With private investments and expansion of infrastructure, there is a potential for increased employment generation.
• Economic Growth and Connectivity: The development and expansion of airports and airlines facilitate better connectivity, both domestically and internationally. This can boost tourism, trade, and economic growth, attracting investments and contributing to regional development.

Some reasons to manage PPP carefully in Indian Aviation sector:

• Strategic Planning: Careful strategic planning to identify the sectors or services suitable for PPP, ensuring alignment with aviation policies.
• Regulatory Framework: Establishing a robust regulatory framework is essential to govern the PPP arrangements, addressing issues such as pricing, service quality, and competition to protect consumer interests.
• Transparency and Accountability: Implementing transparent processes for selecting private partners, conducting fair bidding processes, and ensuring accountability in contract management is vital to prevent potential misuse of public resources.
• Risk Allocation: Clear delineation of risks between public and private partners is necessary to avoid undue burden on the government or taxpayers.
• Financial Viability: Considering factors such as revenue-sharing models, return on investment, and the ability of private partners to deliver quality services while ensuring profitability.
• Public Interest Safeguards: Protecting public interests, such as affordable and accessible air travel, should be a core consideration during the PPP transition.

 The progress of the aviation sector in India has been remarkable, with significant growth, infrastructure development, and government initiatives aimed at enhancing connectivity and affordability. AAI and other Airport Developers have targeted a capital outlay of approximately Rs. 98,000 crores in the airport sector in the next five years for continuous improvements, technological advancements, and enhanced passenger experiences.