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Need more competition to stay as fastest growing aviation market: Ashok Gajapathi Raju, Aviation Minister

"Our finance department decides ultimately what FDIs have to be in every place and they have their own reasoning."

ET Now|
Updated: Jun 16, 2016, 12.49 PM IST
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'Need more competition to stay as fastest growing'
In an interview to ET Now, Ashok Gajapathi Raju, Aviation Minister, shares his views on the new civil aviation policy. Edited excerpts:

ET Now: The new civil aviation policy was in the making for a very long time. What were the big focus areas for you as far as the new policy is concerned?

Ashok Gajapathi Raju: This policy is addressing itself to 22 aspects. Now each aspect cannot be seen in isolation because everything is complementary. We had the good fortune of coming with the draft a few months earlier and we put it in the public domain then we got a close to about 450 suggestions there.

We had an extensive interaction with all the stakeholders airlines, airports, what have you---so all that we had an extensive consultation so that was another angle. In this churning process a lot of ideas emerge and even the press so very helpful because they criticise certain ideas, they praise certain ideas so the reasoning was something very interesting.

Then informal consultations with the group of ministers. Through this churning process we have learnt a lot and direction is basically regional connectivity so keeping that as sacrosanct we have built a policy around it.

ET Now: The 5/20 rule has divided the industry a lot. The old operators still continue to say they will oppose it, the young ones are happy that you have done away with the archaic law. Was there a rough pressure from the lobbies at work to keep 5/20 and what convinced you to do away with it?

Ashok Gajapathi Raju: Lobbies will work. Lobbies have their own reasoning for it, but then ultimately decisions the government has to take in the interest of the country. Because of competition, we have become the fastest growing aviation market. 20-21% has not happened anywhere in the world.

This has happened because of competition, so we need competition to increase. So we decided that it should go. The 20 aircrafts is another angle of it, because we want Indian players to serve Indian skies and the Indian people, we do not want like shipping where they have flags of convenience. That is why we said okay anyone who has 20 aircrafts and serves the minimum of so much within the country they can be permitted to go abroad.

ET Now: A lot of new operators, say an Air Vistara or an Air Asia have about 6 or 10 odd aircrafts. How long do you think they will take to reach the 20s, so that they can fly overseas?

Ashok Gajapathi Raju: If they are so interested in flying overseas then immediately, their aircrafts available on lease worldwide not every airline is owning every aircraft that it flies. So leases are available, options are available so it depends on that thing and there could be new players also coming in. Regional players are visible, national players are not that visible now so let us hope that there also a visibility comes.

ET Now: Why is the government getting involved in deciding fares? You have a cap of Rs 1,300 on a 30 minute, a Rs 2,500 on one hour flight. Do not you think market dynamics should take care of things like these?

Ashok Gajapathi Raju: Definitely, market dynamics has pushed on the pricing in most places now what is this thing we are talking about, we are talking about on viability gap funding. We are talking about a viability gap funding and where airlines will get two streams of revenues one from the passenger and one from the government.

Now the scheme has been formulated. What happens is this scheme will connect unconnected areas. As of today you have 31-32 airports which are not connected, no airline ever goes there, its infrastructure, its low hanging fruit probably out of them some will come.

Then it takes about two-three years for a new route to be stabilised. So it is not even a viability gap funding for eternity so the idea is that they have to develop so some of them will develop.

Why are we trying to get state governments on board because state governments have a responsibility in the planning processes in the industrialisation of a place and the tourism potential so they are the best judges.

ET Now: Will you agree with me that you were in some sense subsidising air travel for a lot of consumers out there?

Ashok Gajapathi Raju: Yes, it is a subsidy for a limited purpose for generating a new destination. So what is it that we are feeling, why this figure of 2500 has come because we feel that the Indian population those who can afford to fly are not flying.

Say an average if you like your passengers as on today, those who can economically afford it, they are averagely taking a flight in once in five years. Now if we can reduce that gap to once in a year, which they can economically afford.

ET Now: You can generate a lot of economy out of this.

Ashok Gajapathi Raju: The economy will grow, everything will grow, everyone will benefit, so that is the idea. So we are working in that direction and this aviation is a transport industry and it contributes to our tourism, our industrialisation.

ET Now: Do you believe this subsidy is also going to be time bound or is this a subsidy for eternity as well?

Ashok Gajapathi Raju: This is a subsidy that has to be time bound, has to connect a new destination, an unserved destination to a serve place.

ET Now: And once this served this purpose, the subsidy will perhaps cease to exist?

Ashok Gajapathi Raju: Probably it should cease to exist and should go, because then competition will take care of that. We find wherever this capacity added, wherever this competition, airfares have gone down.

ET Now: There are many airports out there that could be connected and they have not been. What is going to be the model?

Ashok Gajapathi Raju: I think the airports will be more in the public sector. Airlines will be more in the private sector because it has to be a joint effort. It cannot be a single thing, and airports are basic infrastructure and nonperforming infrastructure would start performing so in that sense it is good for the nation.

ET Now: You have also very categorically said that one of the suggestions that was made in the draft was that FDI could be increased from 49% to 74% over a four-year period say up till 2020. It is not a suggestion that finds favour in your policy finally. Why have you done away with it?

Ashok Gajapathi Raju: No, we have not done away with anything. Our finance department decides ultimately what FDIs have to be in every place and they have their own reasoning. So if not today, probably tomorrow also the idea can come about but the main thing for us that Indian player should serve India and I think we have not deviated from that.

ET Now: One of the concerns that the industry has raised is that you allow 100% in MRO, you allow 100% in cargo, why is it that scheduled carriers cannot have more than 49%?

Ashok Gajapathi Raju: Well to me, in the aviation sector, we want Indian players to serve Indian guys. That is why whatever we want to do, we will promote that way. Now, this has a call on other departments also. So they have to take it. For their own reasons, they have not taken it, it is okay.

ET Now: Personally speaking, are you in favour of higher FDI?

Ashok Gajapathi Raju: I am in favour of more airlines coming in, more aircrafts flying in India, connecting more places, promoting Indian aviation, Indian transport and even cargo.

ET Now: I have a question on MRO and for a very long time this was in the works. You finally given a lot of incentives for India to be an MRO hub. Do you believe the incentives that you have given which are largely fiscal in nature, will that really take care of the intension that you have in mind to establish India as an MRO hub?

Ashok Gajapathi Raju: We think it will because on the skill side, India is second to none in the world. In fact, if you look at MRO industry outside India, lot of Indians are working there also. So keeping that aside, the impediment as we understood was coming from taxation state governments and Government of India.

Now, Government of India has addressed their problem of customs that window that they had of one year to three years and small-small things there plus this service tax of airlines to be passed as a pass so on. They can claim refund of what they have already paid. I think that will help in bringing the Indian MRO activity back to India. As of now, you can say about more than 90% goes out of country.

ET Now: And to destinations very close, Colombo for one. But is there a back of the envelope calculation that you have done about the kind of business that can be generated out of this?

Ashok Gajapathi Raju: I think if Indian players come back to India, that could be close to Rs 5,000 crores.

ET Now: Let us talk about the elephant in the room, which continues to be the national carrier Air India. For some strange reasons, your policy speaks about a lot of things what is very conspicuously silent on Air India. Why so?

Ashok Gajapathi Raju: Everybody loves Air India. Air India is a good airline. But nobody will commit the tax payers money to eternity to be poured down. It is a beautiful airline. It has served India well and wherever they are able to work as a team, cohesiveness, they have delivered. Even the hardest of situations which not many airlines can deliver worldwide, Air India has delivered, where books are bad.

If they continue to work as a cohesive team, stick to the turnaround plan and the financial reconstruction plan and not allow any slippage, they will survive and come out with flying colours. If they allow it to slip, then I do not think anyone will be really able to help them.

ET Now: If they allowed to slip, has the government done its strategy on what will you do with Air India then because privatisation seems to be a very taboo word that comes to the national carrier?

Ashok Gajapathi Raju: No, I do not mind privatisation. It is books are so bad that I will be surprised if someone wants to buy it today straight away. So let us be practical. Privatisation is not a bad terminology but we want the air line to survive and serve Indian guys and if it is privatised, it is okay.

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