To fund new air links to small towns, rural areas
Air travel will become more expensive, with the Narendra Modi government proposing a levy of a two per cent cess on domestic and international tickets to fund an ambitious Regional Connectivity Scheme to boost air links to rural areas and smaller towns so that more Indians can travel by air. Airfares will also be capped at around Rs 2,500 per hour on flights to these remote areas and small towns, and the government will step in to financially assist airlines on these sectors, if needed, so that airlines don’t suffer a loss. The government wants the RCS to come into effect from April 1, 2016. It hopes to collect Rs1,500 crores annually, that will be part of a Regional Connectivity Fund to fund the government’s regional connectivity plans, termed as Viability Gap Funding (VGF). The proposal is part of the new draft aviation policy which also proposes various tax concessions and a possible game-changing proposal of over 50 per cent FDI — up from the current 49 per cent limit — for Indian carriers when the government decides on an “open skies” policy with all countries.
“The Prime Minister’s directive was that we should take flying to the masses,” said civil aviation secretary R.N. Choubey, adding that “airfares will go up by two per cent” (on Category 1 routes comprising major sectors). A draft policy was unveiled by the ministry in the presence of civil aviation minister Ashok Gajapathi Raju and MoS Mahesh Sharma here on Friday.
This draft will be finalised later after feedback from key stakeholders when the date of levy of the proposed cess is decided. The government plans to reactivate around 300 unused airstrips, some of World War II vintage, in order to boost regional connectivity. It also plans to build “no-frills” airports costing around Rs 50 crores each near these airstrips. An entirely new category of airlines, called Scheduled Commuter Airlines, will be established to boost flights to remote areas, wherein aircraft will have a capacity of 100 seats or less and will be exempt from airport charges on these routes.
That is not all. The government plans to boost air travel in general and liberalise bilateral air-traffic rights by proposing an “open skies policy” for Saarc nations and others situated in a radius beyond 5,000 km from New Delhi. An “open skies” policy for countries within a 5,000-km radius may be considered in 2020 when the government may consider allowing FDI in airlines to over 50 per cent. Under an “open skies” policy, foreign airlines can operate any number of flights into and out of India.
If foreign airlines request for more bilateral rights for flights to countries less than 5,000 km from New Delhi, the government may auction the additional seats beyond existing rights to foreign carriers for a three-year period, and this will also be used for the regional connectivity funding. The government has also not taken any decision so far to abolish the “5/20 rule” (wherein an airline has to have 20 aircraft and operate within India for at least five years before being allowed to fly abroad) and suggested that it could perhaps be replaced by a system of garnering domestic flight credits before being allowed to fly overseas.
“RCF will be funded by a levy of two per cent on all domestic and international tickets from January 1, 2016 onwards. The RCF levy will be applied on all routes other than CAT II-A routes and RCS routes,” it said. The Centre will ensure the VGF with an 80 per cent share while states will have to bear the remaining 20 per cent. The Centre will make concessions such as exemption of service tax and exemption of aviation fuel from excise tax for flights to remote sectors while state governments are expected to provide free land, road connectivity and concessional rates of power and water.
“The Centre has proposed to take flying to the masses by making it affordable. This is possible if airfares, especially on the regional routes is brought down to an affordable level,” the draft policy stated.
