India: Aviation Law In India National Civil Aviation Policy, 2016: A Breakdown

Last Updated: 20 February 2017
Article by Aseem Sahni

1. Introduction

The passenger traffic in the country has been steadily growing at an average rate of more than 8% in the last five years, except in 2012-13. In this period, India has registered the fourth fastest growth in passenger traffic after Japan, Brazil and China. As per data available with the Ministry of Civil Aviation ("MCA"), the domestic passenger traffic has grown from 53.8 million in 2010-11 to 68.4 million in 2014-15, a growth of more than 27%. Except for the dip in 2012-13, the domestic passenger traffic has continuously increased year after year. The international passenger traffic, on the other hand has grown from 35.1 million in 2010-11 to 45.6 million in 2014-15, a growth of more than 42%.

A growing reason to fuel the demand growth which has helped the Indian aviation sector is India's growing economy and the ever growing purchasing power among its growing middle class. These factors have helped the Indian aviation sector, to become one of the fastest growing aviation markets in the world. With a view to further strengthen the objective, the MCA, introduced the National Civil Aviation Policy, 2016 ("Policy"), on June 15, 2016, to ease the working of the players in the aviation sector.

2. History of the aviation sector in India-

The Indian aviation sector prior to its liberalization had always been viewed as an elite activity, and one in which governments, could not be seen to allocate resources . Between 1993-03, the industry fell into a dormancy, after the failure of the deregulation experiment.

3. Need for a change in policy-

With the growing needs of the ever increasing demand in India's aviation sector, it was felt by many players in the industry that the law prior to introduction of the Policy, was a cause for concern and often, was described to be a major hindrance to the growth of the sector at large. The government, having recognized this need, led to major reforms by way of introduction of the Policy, which aimed to meet the ever growing demands and needs of the constantly evolving Indian aviation sector.

4. Key features of the Policy-

The policy is said to be designed in such a way, so that it may provide for an ecosystem for the harmonized growth of various aviation subsectors, i.e. airlines, airports, cargo, maintenance, repair and overhaul ("MRO") and the like. The Indian government with the introduction of this policy aims to provide and create, a conducive framework for creating a conducive framework for harmonized growth of various aviation sub – sectors including, development and modernization of airports by State Governments, private players and under the Public Private Partnership ("PPP") model.

The basis of the Policy is also to create an affordable model which can take flying to the masses, to increase the connectivity between cities and also to enhance the ease of doing business in India. Basis of the introduction of this policy, the Government expects India to become the third largest aviation market by 2020 and the largest by 2030.

5. Key highlights:

A tabular breakdown of the key points mentioned in the policy, is as under:

5.1. 5/ 20 Rule:

In October, 2014, the Union Cabinet stipulated that for Indian carriers to fly abroad, they must fly on domestic routes for 5 years and have a fleet of 20 aircraft. With the introduction of the Policy, the said requirement of 5/20 policy has now been modified, and all airlines can commence international operations provided that they deploy 20 aircraft or 20% of total capacity (in term of average number of seats on all departures put together), whichever is higher for domestic operations.

5.2. Bilateral traffic rights:

With the advent of international travel, the Policy aims to liberalize, the Bilateral Rights, leading to a greater use of doing business and wider choice to passengers. Also, the policy mentions that the Government of India ("GOI"), plans to enter into an 'Open Sky Agreement' on a reciprocal basis, with SAARC countries and countries with territory located entirely beyond a 5000 km radius.

5.3. Regional Connectivity Scheme (RCS)- Advantage for Small towns :

Per the Policy, the Regional Connectivity Scheme ("RCS"), is said to come into effect in the second quarter of 2016-17. Per the wordings of RCS, an indicative airfare of Rs. 2,500 per passenger, approximately indexed to inflation, for a significant part of the capacity of the aircraft, for a distance of 500 kms to 600 kms on RCS routes, shall apply.

5.4. MRO:

MRO or the Maintenance, Repair and Overhaul Business, is stated to be around Rs. 5000 crore. As per the findings of the Ministry, 90% of the MRO business, is currently outside India.

With a view to curb this outflow remittance, the Policy has been drafted, to provide exemptions, so that MRO operations may be carried out in India and not outsourced to companies in foreign countries.

5.5. Limits in the form of Fare Cap:

The Policy also mentions that an indicative airfare of Rs. 2,500 per passenger approximately, indexed to inflation, for a significant part of the capacity to the aircraft, for a distance of 500-600 kms on flights of about an hour(s) duration, will be set.

5.6. Code Share Agreements:

The Policy has been liberalized to an extent, with regard to the Code Share Agreement's ("CSA's").Functions such as, domestic code share points in India, will now stand liberalized, as per wordings of the Policy.

6. Conclusion:

It may be noted that India's aviation sector has faced several difficulties, by way of high Aviation Turbine Fuel ("ATF") prices which at times was as high as 50% than in other countries , high cost of airport fees and a relatively high cost of acquiring aircrafts.

With the introduction of the Policy, the Government has aimed to curb the menaces which plagued the Indian Aviation sector in the past. However, it needs to be seen how the policy is implemented, both at the short- term and long term basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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