FY23 Budget: The aviation sector fears that as usual, it will be much ado about nothing

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#2022 Budget, #airlines, #aviation, #UDAN scheme, Union Budget, Nirmala Sitharaman

Year after year, stakeholders in the aviation sector draw up a wishlist they hope will be taken up in the Union Budget. But year after year it remains just that – a wish list.

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The last few years in particular have seen little or no benefits for the aviation sector in the Budget. In fact, in the 2021-22 Budget, even as the aviation sector was bleeding financially because of the Covid-19 pandemic, the budgetary allocations for the sector were slashed by 22 per cent.

In the previous year, the budgetary allocations for aviation had inched up a mere 2.62 per cent.

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Nripendra Singh, Research Director, Aerospace & Defense Practice, Frost & Sullivan, says the government prioritised other sectors and initiatives during the pandemic for relief packages. “As an infrastructure-intensive sector, it requires a calculative approach to strategise initiatives,” he adds.

The only exception in the near past has been Finance Minister Nirmala Sitharaman’s mention of developing 100 more airports by 2025 to support the UDAN scheme and Krishi Udan in her Budget speech in February 2021.

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In the last two  Union Budgets, a large part of the allocations from the central funds for the Ministry of Civil Aviation have gone towards servicing the interest of the Asset Holding Company in which  Air India’s debts are parked and to acquire VVIP  aircraft.

Political lightweight

Those connected with aviation in India attribute various reasons for this step-motherly treatment to aviation in the Budget. According to an expert with four decades of experience in the private sector, the basic problem is that the Ministry of Civil Aviation is politically a lightweight ministry and so it does not figure on the government’s radar. He recalls going for at least three pre-Budget meetings with different Finance Secretaries where nothing more than lip service was paid to the Ministry’s proposals. “Each of those meetings started way after the scheduled time but each one ended in 30 minutes,” he recalls.

Others like two former Secretaries to the government who served in different roles in the Ministry of Civil Aviation maintain that successive budgets have largely ignored the civil aviation sector as it is considered elitist.

No longer an elite preserve

Perhaps that was true at one time, when flying was seen as a rich man’s mode of transport. However, aviation is no longer elitist, especially after the government announced the UDAN scheme with much fanfare in 2016. The basic premise of UDAN is connecting Tier 2 and Tier 3 cities, making flying affordable for common citizens, as the name ‘Ude Desh ka Aam Naagrik’ suggests.

A person in the finance department of a major domestic airline for over four decades points out that “a large number of people have been taking to air travel after low-cost carriers entered the market. They occupy nearly 75 percent of the market share today. Pre-Covid nearly 12 crore passengers travelled by air annually on the domestic side. The middle class population of India is nearly 35 crore.”

A former secretary points out that Budget makers need to differentiate between airlines that are in the private domain and airports, which are more about creating infrastructure.

“The Budget should look at giving a boost to airport development because alongside this, development of roads and the metro system can also be given a boost, all of which will go a long way in giving an impetus to allied sectors like cement and steel apart from creating employment,” he says.

There is a feeling among many aviation analysts that with more and more airports going to the private sector, the space for airports in the Union Budget could also be shrinking. Currently the Adani group manages at least six airports, including Mumbai, and is now involved in development of the Navi Mumbai airport. GMR manages the Delhi and Hyderabad airports and is building the second airport in Goa, while Zurich Airport is developing Jewar airport on the outskirts of Delhi.

Indeed, a former Secretary fears that with Air India getting privatised, the provision (for civil aviation in the Budget) will shrink further.

The latest wishlist

Despite all these factors, a wishlist has been drawn up for the aviation sector this year as well.

Having served in various parts of the country during his almost four-decade-long service in government, a former Secretary to the government suggests that the Budget could look at providing a small subsidy for the creation of helipads in every district, which will not only help in crisis situations like floods or cyclones, but also help the political classes reach their voters quickly.

“Given the large number of civilian planes that India plans to induct, the Budget can also look at providing some subsidy or announce a cut in loan rates for setting up simulators. This will not only bring down the costs for training pilots but could also become a way of generating income for the government as pilots from neighbouring countries can be wooed to come to India rather than go elsewhere and pay more,” he argues.

According to Singh, the two main expectations from the upcoming budget are announcements on how the government can help India become an MRO (maintenance, repair, and operations) hub, and skill development initiatives for aviation.

Satyendra Pandey, Managing Partner of aviation advisory firm AT-TV, pins down the expectations of the entire aviation sector when he says that if there is only one ask from the budget this year, it is liquidity. “Balance sheets are brittle, margins are non-existent and the sector has had repeated shocks. Credit is just not flowing and given the inability to price the risk of the sector (due to changing Covid protocols and the associated demand patterns) calls on capital are fairly frequent. Indian aviation is looking at a scenario where investors who were looking at ‘returns on capital’ are now worried about ‘return of capital’,” Pandey says.

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