Indian aviation industry is passing through a bad phase. Though, Indian carriers flew over 55 millions domestic passengers between January and November against 47 million in the like period of last year, they are finding it extremely difficult to continue with their expansion plans and existing operations, amid rising fuel prices and other policy constraints.

Except the low-cost airline IndiGo, which continued to earn profit, all the other airline players faced tough times and many of them had to cut employee’s salary owing to their bad financial conditions.

The crisis became more evident recently when major private player Kingfisher Airlines cancelled its operation on a number of routes owing to the losses it was incurring on it. The government is also under pressure as the state-run Air India itself is reeling under a huge debt, estimated at over Rs 40,000 crore. A 50 to 60 per cent hike in the jet fuel prices, which account for 40-50 per cent of an airline’s operating cost, has made it difficult for airline players to make their operation profitable. The airline players are blaming central government for imposing unreasonable and unbearable duties on jet fuel prices, and demanding a cut in the taxes levied on the same.

Amidst the growing concern over an emerging crisis in aviation sector, industry honchos are mounting pressure on government to either relax taxes on ATF fuel or announce a bailout package for the ailing airlines.

Background: Indian aviation and India’s mass transit system

Rapid economic growth in India, especially in last 7-8 years has made air travel affordable to more and more Indians. Owing to the increasing number of low-cost carriers like SpiceJet, Paramount Airways, GoAir, IndiGo Airlines, there has been a spurt in the number of domestic air-travelers in last few years. The growth has been so much so that Delhi-Mumbai route is now among world's busiest routes. To meet India’s increasingly growing air traffic the airlines players are also looking for expansion of their operation.

Yet, the share of air-travelers in India is less than 2 per cent and the mode of transportation for rest of the people remains mass transit systems like Indian Railways, and road transport.

While the aviation sector has shown significant growth in recent past on the growing economic prospect in the country, majority of country’s mass transit systems are still to grow to basic international standards. Though government projects like Mahatma Gandhi Gram Sadak Yojna and Golden Quadrilateral have added pace to the infrastructural improvement towards mass transit projects, yet there is much to be done on this front.

Discussion:

While a bailout package can help the ailing industry bounce back to its growth trajectory, it has become increasingly debatable as to what should be the primary focus of the government. Should it spend taxpayers’ money to help ailing airlines industry or the focus should be on mass transit systems across the country?

More than 70 per cent of our country’s population still live in villages and it is unrealistic to dream of a strong economy without making them part of the growth story. At a time when the government is focusing on inclusive growth, it becomes extremely important to invest on roads and railways infrastructure to bring proper connectivity to about 5 lakh villages of our country. A proper connectivity and higher level of mobility will provide a momentum to agricultural activity in rural areas, thus making a positive impact on the economy.

Indian Railways while boasts of having one of the largest networks in the world; it still lacks adequate infrastructure and technologies in terms of safety measures that is much required. There are many important cities where Railways has still to lay its tracks.

Another factor of great importance is that urban population in the country has swollen rapidly but most of the cities are continuing with the same old transit systems and they have not been able to keep pace with the mounting pressure on the existing infrastructure for transportation. This is resulting in wastage of human resources as people spend hours in traffic jam which eventually affects their productivity. So, strengthening and upgrading mass transit system in urban areas is an urgent need.

For:

A bad operating climate due to unreasonably high Aviation Turbine Fuel (ATF) prices in the sector has brought some of the domestic carriers to the brink of closure. Bailing out the ailing airline players might be a positive move by the government to help sustain the growth momentum of the sector. As private airline players are forced to maintain connectivity between remote parts of the country and better- connected transport hubs, the government is also obliged to help the ailing players when they in deep crisis.

This will also encourage low-cost airlines to look forward to their expansion plans to enter into tier-II and Tier-III cities. Private airlines in the country are in dire need of funds for their operations and service upgradation to compete with other global carriers. Therefore, the sector needs attention of the government given its role and contribution to the overall growth of economy.

Against:

Giving a bailout package to the ailing players in the aviation industry might establish a wrong precedence as other players may also demand similar packages in future which would be an unwarranted situation for the government. As the government always talks about inclusive growth, other modes of transportation are more important and a bailout package for airline players would be a complete injustice to a common man. The failure of airline players to develop a sustainable aviation model suitable for the country should not be blamed on government policies. Therefore, there is no apparent need for the government to intervene in terms of writing off individual loans or sinking more taxpayers' money to bail out Indian Airlines or any other private player.

Conclusion:

Given the primary objective of a democratic government to focus on inclusive growth, the government needs to invest more on the mass transit systems. While government should positively respond to the demands of airlines players by rationalizing its policies, it should not consider any bail-out package to the ailing players. Instead the money it might consider for a bailout should be spent on building and upgrading the rural and urban mass transit systems. The airlines players should also think of increasing their efficiency and by that mean they should find ways to minimize their cost.

While government should keep focused on the mass transit systems in the country, it is also obliged to back the growth of the aviation sector that is a major indicator of country’s growing economic status. The government should definitely look into problems of the industry and consider measures like rationalizing taxes and lowering duties on jet fuel prices to help the ailing industry.