CASE STUDY 3: REGIONAL AIRPORTS AND AIR SERVICES
The last of the three Case Studies we are looking at relate to the new civil aviation policy that calls for government-supported promotion of new regional airports and subsidized regional air services. Another example of elite-oriented "development," with public expenditure and subsidies to boot, whereas in direct contrast basic necessities of infrastructure and essential services such as health and education required by the common people are being denied or withdrawn by the government in the name of shortage of funds or austerity. Many people may ask: why are we discussing something as remote from the lives of common people as regional airports and air services? Surely, there must be more important things to discuss, which touch most of our lives? Even Urbanization and Rail Services impact
24Development for the Rich
on the lives of the common citizen and discussions of Smart Cities and Bullet Trains are therefore understandable. But why discuss obviously elitist infrastructure like airports? The answer is that this precisely shows that the model of "development" being followed by this government is pro-elite rather than pro-people. New Civil Aviation Policy The recently announced National Civil Aviation Policy (NCAP), much touted for being the first ever policy framed for this sector, is another such pro-rich policy. Two aspects in the NAPC stand out and are discussed here. First, an explicit commitment to invest State effort and public funds, including subsidies, on expanding the civil aviation customer base and related infrastructure, with the perspective that this will have a multiplier effect on the economy and will benefit the common man. Second, the idea that a set of fiscal, procedural and regulatory incentives will open the floodgates of private sector investment especially FDI into subsectors that are not doing well, even though the real reason behind the sluggishness is that, in the face of persistent private sector reluctance and lack of capacity, the State has been and continues to be unwilling to directly apply itself to the task. Two contradictory impulses are at work behind these policy directions, both based on fundamental misconceptions, and neither of which will yield the desired results. Regional Connectivity Scheme The big argument in NCAP is that civil aviation has a multiplier effect on the economy, generating 3.25 times economic growth per unit of investment, and over 6 times the number of jobs compared to average GDP growth, that too especially for "semi-skilled and unskilled workers" if NCAP is to be believed, presumably such as porters, loaders and taxi-drivers. It further argues that, if the estimated 300 million strong middle-class buys just 1 air ticket a year, this would mean a more than 4-fold increase! The Policy therefore seeks to "take to take flying to the masses by making it affordable and convenient… especially on regional routes" which are currently under-served. This is pure myth and serves only to mislead the public that this pro-rich expenditure is for the benefit of the common man who, of course, does not travel by air. NCAP argues that this potential calls for a massive and rapid expansion in air passenger and cargo traffic, which in turn "will require
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concessions by the Central and State Governments and Airport Operators." Through a new Regional Connectivity Scheme (RCS), the Policy seeks to open up air connectivity to existing non-functional or new airports in small towns and cities on hitherto un-served or under-served regional routes. The Ministry of Civil Aviation (MoCA) would provide subsidy or Viability Gap Funding (VGF) for a "significant part of the capacity," (some reports say this could be around 50 percent) of such routes of around 500-600km distance or 1 hour flight. Fares would be capped at Rs.2500 per seat, and a host of other concessions and incentives would be offered apart from fare subsidies. Currently, commercial operations are underway in 75 out of a total of 450 airstrips or airports in the country, some of which are being used for the odd charters, flying clubs or other purposes. RCS seeks to revive and upgrade selected airstrips/ airports on the basis of demand by airlines, with MoCA pledging to meet up to 80 percent of the estimated Rs.50-100 crore cost with State Governments meeting the balance 20 percent, the ratio being 90:10 in case of the North-East, "without insisting on financial viability" (emphasis added). State Governments will be required to provide all necessary land free, levy only 1 percent VAT on aviation fuel, reduce excise duties etc etc. The subsidy would come from a yet-to-be-specified levy on all air passengers travelling on trunk routes. There are many issues related to whether this scheme will work at all, as discussed below. But the bottom line is that the Government will pay for upgrading new airports, and will subsidize the airlines and passengers by contributing to around half the passengers’ fares and capping them. Corporate circles are overjoyed, airline shares have shot up and the pink press is overwhelmingly congratulatory. That is paradoxical indeed, considering that the corporate sector and proliberalization commentators in general have always cried hoarse against subsidies and government "hand-outs," especially when it comes to the masses, for instance the 90 percent of railway passengers who travel by second-sleeper or lower classes cross-subsidy for whom has long been begrudged as a drag on profitability and the economy. But subsidies for the rich and for private airlines are no problem, and viability of airports is of no concern! Not workable
26Development for the Rich
However, despite the fond hopes of a State-led and Statesubsidized expansion of air passenger traffic, the idea itself will simply not work, ironically because of contemporary market realities. Of the 75 airports currently in operation, several are already non-viable, have very slim passenger traffic or aircraft movement, and really have little to justify their continued functioning. For example, the once prestigious Mysore airport in Karnataka’s former capital and second city, today has no flights. The public sector Indian Airlines heroically kept up heavily loss-making flights, dwindling to a single flight a week, to Mysore which the Airports Authority of India (AAI) ran at a loss for several years. Vijay Mallya’s Kingfisher too ran some flights to Mysore out of hubris. All to no avail, and Mysore Airport is today shut. So too is the airport at Shimla. Not enough demand, with many alternative modes of travel available, even for the well-heeled passenger. Only state-owned Air India today flies to Kullu a few days a week with an astonishingly high fare of Rs.9,500 for a flight of just over one hour! Can this be subsidized to Rs.2500? Will any subsidy revive Mysore or Shimla airports? Back in 1994, under so-called Route Dispersal Guidelines (RDG), the pre-merger state-owned monopoly carrier Indian Airlines was ordered to run services on what were then loss-making routes to the North-East, the Islands, J&K and some Tier-II and Tier-III cities. In many cases, these locations were remote, with virtually no other connectivity to the mainland or were considered to be of tourist or strategic importance such as Jaipur, Agra or Bagdogra. These services were cross-subsidized by 12 trunk routes connecting the metros and major cities, a subject of much criticism in the LPG era. Today, many of these routes have vindicated the decision to cross-subsidize them, and have multiple daily flights including by private airlines with no need for subsidy, major airports in the North-East having over 2,000 daily passenger movements. But will the same apply to airports other than these? Of the current 75 operational airports, around 25 even today cater to less than 250 passenger movements (in-coming and out-going together) per day, or roughly 3-4 aircraft movements daily! And this includes large or prominent locations such as Khajuraho, Allahabad, Gorakhpur, Gwalior, Agra and Kanpur. Fact of the matter is that the
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demand is limited, other convenient and affordable means of transport are available, and subsidies are either not needed or will make no sense. It is highly doubtful if a credible list of locations could be drawn up that are so remote or so strategically located that they need or can justify the Regional Connectivity Scheme drawn up under the NCAP? Or is this just wishful thinking, or will they be just vanity projects favoured by Chief Ministers or local MPs or other VIPs? Unlike the RDGs of yore, there is unlikely to be sound justification for any significant list of deserving airports or routes. And even if subsidy were to be given, they would be very unlikely to justify themselves a few years down the line. So here is a case of the State going out of its way to subsidize transport services for the better-off, going against the prevailing marketgoverned wisdom, with little justification in terms of objective criteria and fewer rewards even in the long run.
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