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Aviation and India’s integration in Global Economy

New Delhi. With the first decade of the 21st century drawing to a close, India’s economy is set to integrate itself into the global economy. And it assigns critical importance to the upgrade and modernisation of the country’s infrastructure and its efficient use, including air infrastructure.

Today, it is increasingly recognised that aviation is not just a mere mode of transportation for an elite part of the population, but is crucial for sustainable development of trade and tourism. In this context, it is vital that airport infrastructure grows in anticipation of the escalating needs of the air transport industry.

Being a capital-intensive sector, there is an obvious need for prospective planning with a vision for the coming decades and to muster the combined resources of the public and private sectors, both domestic and foreign.

India’s Civil Aviation Minister Praful Patel recently commented that he expects the country’s newly regulated airline sector to boom 20 per cent annually over the next five years on the back of surging investment and traffic.

Domestic and international passenger traffic would grow 20 per cent a year as the government and the private sector invest $20 billion over the next five years, including more than doubling the number of civilian passenger planes to 400, he said in an interview.

After years of crippling red tape, poor infrastructure, and high costs, India is throwing open the sector to new carriers at home and abroad, deregulating routes, increasing traffic, developing its airports and modernizing its fleets.

With the opening up of the government and the start of the liberalization process, of its aviation sector, several actions have been taken already in this regard.

These include the liberalization of international traffic to a great extent.

With the United States, India has a near open skies policy. In November 2005, the government granted slots to both American Airlines and Continental Airlines for direct flights between the US and India and additional slot discussions are underway. India has entered into very liberal agreements with the United Kingdom and many other countries, including those in the Gulf.

These agreements are spurring demand internationally as well as domestically.

India has also allowed many new low-cost carriers, inclusing Kingfisher, Deccan, and other smaller as well as regular carriers to start operations.

Recently, the government signed breakthrough agreements with the lucrative United States and United Kingdom markets, doubling capacity to and from the UK and opening skies with the US.

India has also agreed to liberalise traffic with China.

The two nations account for almost 40 per cent of the world’s population.

Mr Patel has declared that India is pushing ahead with more thorough international partnerships, bilateral agreements to increase international routes, including new routes with Singapore, Hong Kong, the Netherlands, and Belgium among other destinations.

This is despite the fact that India’s average annual air travel is 0.1 trip per person per year, a fraction of the global average of 2.0 as industry figures show.

The latest entrant into the Indian market, Kingfisher Airlines, backed by the world’s second largest spirits maker, India’s UB Group, took off in July, 2005. India’s leading domestic carrier, Jet Airways Ltd., which has begun flying overseas, recently raised $435 million in an initial public offering that was heavily oversubscribed and the stock listed at a premium to the offer price.

Recently, the Indian government approved the long-awaited purchase of up to 50 long range planes from Boeing worth about $7 billion in a deal that has drawn public protest from the European rival. This is an important testimony to the need for the US to continue to forge a strong partnership with India in the development of its aviation sector.

Also, the Airports Authority of India (AAI) announced that it will upgrade the Kolkata and Chennai airports at a total cost of Rs 3,800 crore, scheduled to be completed by 2010-11.

“AAI would spend Rs 2,000 crore to modernise the Kolkata airport and Rs 1,800 crore for the Chennai airport. The modernisation process has to be completed by 2010-11,” AAI Chairman K Ramalingam said at the inauguration of ‘Aerodrome India 2008’ in New Delhi.

At the Kolkata airport, a new runway would be constructed along the existing one. For Chennai airport, the existing cross-runway would be operationalised and an additional runway would be built, Mr Ramalingam said.

“The in-principle approval for the modernisation plans of the two airports has been given,” he said, adding that the projects would be carried out by AAI.

AAI would also commission a new runway at the Delhi airport by September 2008. “A third runway would be commissioned by September along the two existing ones at the Delhi airport,” he said.

Mr Ramalingam said there was a need to build aviation infrastructure at faster rate to manage the traffic and build capacity at various airports and these projects are a part of that process. He also said that efforts are being made to enhance non-traffic revenue to upgrade airport infrastructure.

At present, AAI operates 82 airports in India. There are 45 others, which are non-operational.

The government is keen to revive these closed airports with the help of the public sector. The Civil Aviation Ministry has been asked to draw up a list of the closed airports. It is estimated that the country needs at least 400 to 500 airports to sustain its burgeoning economic progress.

The government will also be blacklisting contractors who are responsible for delay in ongoing projects of airport modernisation. “Tenders for capital work are not being issued to the contract agencies responsible for delay in projects,” the Civil Aviation Minister had recently told the lower house of Indian Parliament, Lok Sabha.

He pointed out that the terminal building projects at Jaipur, Udaipur, Srinagar, Vizag and Agatti had been delayed.

The government is also ensuring strict enforcement of contract clause towards liquidated damages, compensation, recession, termination of contracts, he said adding that a clause for bonus and incentives for early completion of contracts is being incorporated in future tenders.

A study carried out to evaluate aviation projects in India by CORE International, Inc. for US Trade and Development Agency (USTDA) has pointed out that clear and strong commitment to opening the Indian aviation sector to increased private participation and foreign investments was demonstrated by the recent signing of the Open Skies air transport agreement between the United States and India on April 15, 2005 to strengthen aviation ties between the world’s two largest democracies.

This landmark agreement significantly strengthens US-Indian aviation relations by allowing Indian air carriers to make commercial decisions with minimal government intervention.

It provides for open routes, capacity, frequencies, designations, and pricing, as well as opportunities for cooperative marketing arrangements, including code-sharing among the Indian and US carriers. It also includes all-cargo seventh freedom rights, allowing airlines to perform international cargo operations with no connection to their homeland.

According to the report, the establishing of Open Skies as the basis of US-Indian aviation relations is an important step toward spurring trade, investment, tourism, and cultural exchanges between the world’s two largest democracies.

© India Strategic