Life after 5/20 rule: a flying affair

Why are we going against our own domestic airline players? Why do we need foreign players? Won’t the new 0/20 rule derail the already fragile domestic airlines industry? Doesn’t Make in India principles apply to civil aviation?

Frankly, a lot of misperception seems to be in the air. In recent times, the Centre has been giving clear indications of continuing liberalisation agenda in the aviation sector. Though the National Civil Aviation Policy, 2016, took a long time to be finalised and took perhaps more time and inputs from stakeholders than was expected, at least it has brought to a good close many important–and for long controversial–aspects, such as the 5/20 rule for international operations.

In fact, many people questioned the somewhat open-ended approach the government had taken on this at the draft stage and there was a feeling that the policy on this aspect may even be put off for the future. Thankfully, the government has taken a clear and correct position of moving ahead with further liberalisation by bringing in the 0/20 rule and thus giving more choices to those flying overseas.

When we study the key objectives of the policy, such as significant growth in the civil aviation sector, or contributing to increased tourism, or enhanced ease of doing business, and which all are the right objectives, and then apply the test to see if we are moving towards achievement of these objectives, it is quite apparent that the changed position of the government – 0/20 rule for international operations – is more aligned to achievement of its stated objectives than the existing position of 5/20.

Any liberalisation is good for the consumer and therefore, we must pursue it. Having said that, any liberalisation that is brought in an ad hoc or rushed manner, or with no consideration for the evolving domestic players, may have pitfalls that need to be carefully considered. The so-called level-playing field demanded by some of the existing players did not really merit postponement of liberalisation as they had more than adequate time to gain their own advantages, they definitely should not have expected a permanently restrictive policy. And frankly, not taking full advantage of the time they had is not an issue that the government should worry about seriously.

And then, there are the permanent pessimists who would argue that such a changed position of the government will bring in a total push back to the domestic industry and the foreign players will take over our skies. This is an extreme and unwarranted fear mongering without any clear evidence for reaching such a conclusion, plus it completely ignores the fantastic strength that the existing established domestic players have already demonstrated.

The Indian passengers flying abroad or international passengers flying into the country are very mature and discerning consumers who will go by the quality of service and value for money rather than domestic or international ownership or new or old players. Air travel is a service industry and whoever gives the best service for market, sensitive price will have the advantage. So, whoever enters the market now, thanks to the liberalised policy, will have to compete fiercely in the market to get a fair share.

It is also important to understand the broader context and thinking of the government rather than looking at just one or two specific policy changes. Not just in civil aviation but in many other sectors, the government has been consistently trying to liberalise more, always keeping in mind the end users’ interest and the larger economic development goals.

FDI moves

The recent liberalisation of the Foreign Direct Investment (FDI) policy, including in civil aviation, is the right move and signals a clear indication of the approach by the government. It is pretty clear that we could expect even more liberalisation push in many of the unfinished issues and other sectors in the coming months and years. And frankly, looking back, there is no evidence in the country that liberalised policies in any sector have done harm to the economy or to the users. Just imagine what would have happened to the growth of air traffic, service quality and air travel prices if we had continued with just 2-3 airlines serving the public, without the big bang liberalisation we went through more than a decade ago.

The growth of civil aviation sector is very closely tied to the overall economic growth. And in-bound and out-bound aviation sector is even more critical for growth of the economy that is tied to the international markets. The government has to continuously ensure that the policies are supportive of such a growth and in fact, the policies are forward looking enough to lead the relevant parts of economic growth.

In such a situation, any move by the government to become protectionist in nature would be clearly a regressive step. What the present government has done now is flying ahead in the right direction. There are no losers in this game. Consumers and the economy are the real winners which is what indeed we are all trying to achieve in these policy debates.

(The writer is partner, Deloitte Touch Tohmatsu India LLP leads Infrastructure & Capital Projects for India. Views expressed here are personal)