India: Civil Aviation Regulatory Framework In India

Regulatory framework for civil aviation in India:

Currently, India is one of the fastest growing markets for civil aviation despite the stress faced by the aviation sector due to the COVID-19 pandemic¹. India's domestic traffic makes up more than 65% of the total traffic in the South Asian region². India is the tenth-largest market for civil aviation around the globe and it has been predicted that the Indian civil aviation market will experience exponential growth in the years to come³.

The Ministry of Civil Aviation is responsible for formulation of national policies and programmes for the development and regulation of the civil aviation sector in the country⁴ and the Ministry of Home Affairs is responsible for all security related policies including aviation security.

In India, the civil aviation sector as defined under the Foreign Direct Investment ("FDI") Policy 2020 includes "Airports, Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services/Seaplane services, Ground Handling Services, Maintenance and Repair organizations, Flying training institutes and Technical training institutions".

The primary legislation governing civil aviation in India is the Aircraft Act, 1934 and the rules made thereunder. The Aircraft Act establishes "control of the manufacture, possession, use, operation, sale, import and export of aircrafts and licensing of aerodromes". The Aircrafts Act grants statutory recognition to the Directorate General of Civil Aviation ("DGCA"), the Bureau of Civil Aviation Security ("BCAS") and the Aircraft Accidents Investigation Bureau ("AAIB") which are currently the regulatory bodies working under the Ministry of Civil Aviation and govern and monitor civil aviation in India. Each of these regulatory bodies have their own distinct function and roles and often work hand-in-hand to ensure effective regulation of aircrafts and airports in India. The DGCA is the primary body, responsible for regulation of civil aviation in India and for the enforcement of air worthiness and air safety standards as prescribed under the Aircraft Act, 1934 and rules.

Other important legislations which govern civil aviation in India include:

1. The Airports Authority of India Act, 1994, which establishes the Airport Authority of India ("AAI") and makes it responsible for the development, maintenance, operation and finance of airports in India,
2. The Carriage by Air Act, 1972 governs the rights and liabilities of air carriers and is applicable to both domestic and international carriage by air,
3. The Airports Economic Regulatory Authority of India Act, 2008, which establishes a statutory authority called the Airports Economic Regulatory Authority ("AERA") to regulate tariff for the aeronautical services, determine other airport charges for services rendered at major airports and to monitor the performance standards of such airports.

FDI policy on civil aviation:

In addition to the above, the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 ("NDI Rules") and the Consolidated Foreign Direct Investment Policy, 2020 ("FDI Policy") govern the foreign direct investment ("FDI") in the civil aviation sector in India and prescribe sectoral caps on the amount of FDI can be invested.

Further, these regulations prescribe two routes through which FDI can be made: i) Automatic Route: which does not require any governmental or RBI approval and ii) Governmental Route: which requires governmental or RBI approval in case the amount FDI crosses the threshold as prescribed under the relevant regulations.

The below table enumerates the FDI limits, the routes and the sectoral caps in the civil aviation industry in India:

FDI Limits⁵:

As you can notice above, most activities in the civil aviation sector are under the 100% automatic route for foreign investment. This affords tremendous opportunities to US companies to invest in the Indian civil aviation sector.

International Conventions:

On 7 December, 1944, 52 nations signed the new Convention on International Civil Aviation which came to be known as the Chicago Convention⁶. The Chicago Convention was ratified by the governments of both India and USA. The Chicago Convention promoted the practice of a safe and orderly manner in which international air transport services may be established on the basis of equality of opportunity and further facilitated sound economic operations. The Chicago Convention laid the groundwork for the Air Transport Agreement which came to be signed between the Governments of India and USA in 1956.

In addition to the above, India and USA are also parties to various international conventions that promote and unify numerous rules and regulations pertaining to safety, use and peaceful travel of passengers and cargo alike.

A few of them are listed herein below:

1. India and USA are also parties to the Convention for The Unification of Certain Rules Relating to International Carriage By Air, 1929 which is commonly known as the Warsaw Convention. This Convention laid down the rules inter alia pertaining to provision and the contents of a passenger ticket, luggage ticket, air consignment note, etc.
2. India and USA are parties to the Convention on Offences and Certain Other Acts committed on Board Aircraft, 1963 which was signed at Tokyo. This Convention dealt with offences against a penal law, acts which jeopardize the safety of the aircraft or of the persons or property therein or which jeopardize good order and discipline on board the aircraft.
3. India and USA are parties to the Convention for the Suppression of Unlawful Seizure of Aircraft, 1970 which was signed at Hague. This Convention condemned the unlawful acts of seizure or exercise of control of aircraft in flight, which jeopardizes the safety of persons and property, seriously affecting the operation of air services which would undermine the confidence of air travellers in the safety of civil aviation.
4. India and USA are parties to the Convention for the Unification of Certain Rules for International Carriage by Air, 1999⁷ signed at Montreal. This convention modernized and consolidated the Warsaw Convention.

Air Transport Agreement:

India and the USA have liberalized the Air Services Agreement. A revised Air Transport Agreement between India and USA was signed on April 4, 2005 replacing the earlier Agreement signed in 1956. USA was the first country with which India has signed an agreement based on the open sky principles. The salient features of the said Agreement are as under:

• Multiple designation of airlines i.e., either side can designate any number of airlines.
• No restriction on frequency/capacity.
• No restriction on point of call, i.e., airlines of either country can operate to any point in the territory of the other Contracting State.
• No restriction on the exercise of 5th freedom traffic rights through any intermediate point and to any beyond points.
• No restriction on establishment of offices i.e., either side can establish offices in each other's territory for the promotion and sale of air transportation.
• No restriction on cargo flights i.e., either side can operate any number of freighter services to any airport in the other country.
• Traffic from one aircraft can be transferred to another aircraft at any point on the route.
• Airlines of both sides can code share with other airlines as well as domestic airlines of the other country.

The benefit of this Open Sky Agreement has been that though the earlier Agreement had provision of multiple designation and no restriction on 3rd/4th freedom traffic rights to the available points of call, the revised Agreement has also lifted restrictions on the points of call. It has also removed all restrictions on exercise of 5th freedom traffic rights, code share rights and provides for greater operational flexibility. The removal of restrictions on points of call, code share rights and 5th freedom rights⁸ has provided greater commercial opportunities to the carriers of either side. At present, nonstop direct flights from USA to India are operated on nine routes, including three by United Airlines and five by Air India.

Open Sky Policy:

A policy of "open skies" for air cargo was adopted in India in 1990, initially for a three-year period, and extended in 1992 on a permanent basis. Under this new policy, any airlines, whether Indian or foreign, which meet specified operational and safety requirements, are allowed to operate scheduled and non-scheduled cargo services to/from any airports in India where custom/immigration facilities are available⁹. However, the Indian Government on September 17, 2020 amended its Open Sky policy with a view to ensure fair and equal opportunity in the air cargo capacity offered by Indian registered airlines and foreign registered airlines. It has restricted the operations of foreign ad hoc and pure non-scheduled freighter charter service flights to only six airports, namely - Bengaluru, Chennai, Delhi, Kolkata, Hyderabad, and Mumbai¹⁰. The policy has been amended with a view to help increase demand for domestic freight charter services. Although the policy may come across as protectionist, fuelling a domestic demand will invariably benefit the entire civil aviation industry at large considering India's dependence on importing aircrafts / technology.

Footnotes

1 https://www.ibef.org/industry/indian-airports-analysis-presentation

2 https://prsindia.org/theprsblog/state-of-the-civil-aviation-sector-in-india

3 https://www.ibef.org/industry/indian-airports-analysis-presentation

4 https://www.civilaviation.gov.in/en/aboutus/orgsetup

5 Pg 40-44 of FDI Policy: https://dpiit.gov.in/sites/default/files/FDI-PolicyCircular-2020-29October2020.pdf and the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2020: https://egazette.nic.in/WriteReadData/2020/220699.pdf

6 https://www.wipo.int/edocs/lexdocs/treaties/en/icao-ca/trt_icao_ca_001en.pdf

7 https://www.icao.int/Meetings/AirCargoDevelopmentForum-Togo/Documents/9740.pdf

8 https://www.icao.int/pages/freedomsair.aspx

9 https://www.icao.int/sustainability/CaseStudies/StatesReplies/India_En.pdf

10 https://www.dgca.gov.in/digigov-portal/Upload?flag=iframeAttachView&attachId=150082378

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