While industrial growth triggered by the first leg of economic liberalisation in early nineties led to a sea change in India’s social fabric over the last couple of decades, aviation stands apart as a sector that is capable of fuelling drastic changes in terms of economic growth.
A few factors such as foreign direct investment (FDI) in domestic airlines, low-cost carriers (LCC), information technology (IT) interventions and a rising need for regional connectivity have pushed the growth in the domestic aviation space.
These have catapulted the size of Indian aviation to $16 billion, making it one among the top 10 aviation markets in the world and leading to bullish outlook among industry watchers. “There is a rare convergence of political will, social aspiration and business interest in India which will propel the growth of Indian economy. One would expect the aviation market to grow to aid this growth,” says Charles Dhanaraj, professor of Strategy and Global Leadership at XXX (please mention the university or collage and the city)
.
In terms of additional passengers per year, India is expected to be among the top five air travel markets globally by 2034, according to the International Air Transport Association (IATA).
Aircraft movements, passengers and freight at Indian airports are expected to grow at 4.2 per cent, 5.3 per cent and 5 per cent, respectively, for the next five years, according to estimates by Airports Authority of India (AAI). “A major underexploited opportunity is the domestic freight transport. There is increasing potential for moving high value goods domestically through air freight,” says Charles.
Investment galore
Significant growth in FDI inflows and a slew of government initiatives provided fodder for the sector’s transformation. FDI inflows in air transport during April 2000 to November 2014 stood at $543 million, as per data released by Department of Industrial Policy and Promotion (DIPP). Recent investments from private players include IndiGo’ order for 250 A320neo airplanes from Airbus for $25.5 billion, Star Alliance’s plans to turn New Delhi’s T3 and Mumbai’s T2 Terminals into hubs and the pact signed by Vistara, the airline by the Tata Group-Singapore Airlines (SIA) alliance, with SITA for aircraft communications, airline operations and network connectivity.
Government initiatives
The government, which has been bullish about pushing the sector’s growth, has projected that around 500 airports would be required by 2020. It has already approved the construction of five budget airports to improve regional connectivity and launched tourist visa on arrival (TVoA) enabled by electronic travel authorisation (ETA) to 43 countries besides plans to privatise national airline Air India.
The private sector is sought to be involved in a big way through the PPP model, with significant state support in terms of financing, concessional land allotment and tax holidays. “With private sector participation and the right policies, India would be well-placed to become one of the largest aviation markets by 2030,” says Ramesh Lingamaneni, chairman of Hyderabad-based low-cost airline Air Costa.
Air Costa is one of the carriers that aim to leverage the expected growth in air transport between tier 2 and 3 cities. “We aim to tap the burgeoning tier II market by stimulating growth through better air connectivity to the tier I cities. Our choice of Embraer aircraft (E170 with 67 seats and E190 with 112 seats) complements this vision,” says Air Costa CEO Capt. KN Babu.
Economic benefits
The aviation sector meets growing transportation needs of consumers—airlines registered in India carry 50 million passengers and 1.1 million tonnes of freight a year to, from and within India; more than 130,000 international flights depart India annually; domestically, more than 664,000 flights make 89 million seats available to passengers annually. It also offers better connectivity—for instance, daily there are 8 flights between Delhi and Dubai and more than 59 flights from Delhi to Bombay.
The sector contributes INR 330 billion (0.5%) to Indian GDP and provides 1.7 million jobs besides paying over INR 87.5 billion in tax including corporation tax levied on profits.
This is in addition to the long-term benefits to the economy. Through investments and use of advanced technology, the aviation sector generates more gross value added (GVA) per employee than the economy as a whole, raising the overall productivity of the economy.
Boosting tourism and trade
Air transport lies at the heart of Indian tourism. Through speed and convenience, air transport has expanded the possibilities of travel for tourists and business travelers alike, allowing more people to experience diversity of culture.Tourism, both for business and leisure purposes, makes a large contribution to the Indian economy, with foreign visitors spending over INR 548 billion in the Indian economy each year. Around 89 per cent of these visitors arrive by air which means foreign visitors who travel by air spend approximately INR 488 billion.
Considering air freight makes up 34.6 per cent of the value of global trade, aviation also provide a huge fillip to trade in the country.
Hampering environment
However, the growth of aviation happens at the cost significant damage to the environment. Aviation contributes to climate change by altering the composition of atmospheric gases. In addition to CO2, emissions from aviation combustion processes comprise NOx, SOx and VOC which pollute the fabric of atmosphere.
According to Intergovernmental Panel on Climate Change (IPCC), CO2 emissions will grow 2.8 per cent annually between 2000 and 2050 and are projected to make up 16 per cent of total transportation carbon emissions, pointing to the need for a shift towards solar powered aircrafts in the long run. IPCC also calculates the climate impact of aviation to be 1.96 times that of CO2 impact. In addition to its contribution to climate change, aviation hampers ambient air quality, affecting public health. This is besides the negative environmental impact of noise pollution contributed by the growing number of aircraft.
In the Indian context, the Directorate General of Civil Aviation (DGCA) under the Ministry of Civil Aviation keeps a check on aircraft noise and engine emissions in accordance with norms formulated by International Civil Aviation Organization (ICAO). It has also set up an Aviation Environmental Unit that seeks to provide guidance on fuel efficiency improvement, CO2 reduction or noise abatement. Besides, DGCA has mandated stakeholders such as airport authorities, airlines or air navigation service providers to create environmental units to submit fuel consumption data monthly to help build a country-wide CO2 emission inventory. However, there is scope for stricter norms to control aviation emissions and penalise defaulting stakeholders.
Against the background of growing opposition to Modi government’s Land Acquisition Bill that aims to ease the process of acquisition of land for industrial purposes, land acquisition for the proposed airports too will prove to be a tough nut to crack both politically and economically.
There are also concerns about supporting infrastructure and taxation. “There is a huge need for up gradation of the airports at tier 2 cities where the major growth should happen,” says Charles. “There is still scope for improvement in the airport infrastructure. Another concern is over-taxation – central and state taxes on fuel and maintenance as well as service taxes on air tickets are likely to hamper growth,” says Ramesh.
However, the silver lining is the expected growth in the number of aircraft as well as domestic and international passengers from India. This projected growth, along with India’s low air traffic density—72 compared with 282 in China and 2,896 in the US—signals a huge untapped potential.
As IATA CEO Tony Tyler put it, the world is focused on Indian aviation – from manufacturers, tourism boards, airlines to individual travellers, shippers and businessmen. Consensus among these stakeholders, right policies and focus on quality, cost and passenger interest will transform India to one of the largest aviation markets within a couple of decades.
A few factors such as foreign direct investment (FDI) in domestic airlines, low-cost carriers (LCC), information technology (IT) interventions and a rising need for regional connectivity have pushed the growth in the domestic aviation space.
These have catapulted the size of Indian aviation to $16 billion, making it one among the top 10 aviation markets in the world and leading to bullish outlook among industry watchers. “There is a rare convergence of political will, social aspiration and business interest in India which will propel the growth of Indian economy. One would expect the aviation market to grow to aid this growth,” says Charles Dhanaraj, professor of Strategy and Global Leadership at XXX (please mention the university or collage and the city)
.
In terms of additional passengers per year, India is expected to be among the top five air travel markets globally by 2034, according to the International Air Transport Association (IATA).
Aircraft movements, passengers and freight at Indian airports are expected to grow at 4.2 per cent, 5.3 per cent and 5 per cent, respectively, for the next five years, according to estimates by Airports Authority of India (AAI). “A major underexploited opportunity is the domestic freight transport. There is increasing potential for moving high value goods domestically through air freight,” says Charles.
Investment galore
Significant growth in FDI inflows and a slew of government initiatives provided fodder for the sector’s transformation. FDI inflows in air transport during April 2000 to November 2014 stood at $543 million, as per data released by Department of Industrial Policy and Promotion (DIPP). Recent investments from private players include IndiGo’ order for 250 A320neo airplanes from Airbus for $25.5 billion, Star Alliance’s plans to turn New Delhi’s T3 and Mumbai’s T2 Terminals into hubs and the pact signed by Vistara, the airline by the Tata Group-Singapore Airlines (SIA) alliance, with SITA for aircraft communications, airline operations and network connectivity.
Government initiatives
The government, which has been bullish about pushing the sector’s growth, has projected that around 500 airports would be required by 2020. It has already approved the construction of five budget airports to improve regional connectivity and launched tourist visa on arrival (TVoA) enabled by electronic travel authorisation (ETA) to 43 countries besides plans to privatise national airline Air India.
The private sector is sought to be involved in a big way through the PPP model, with significant state support in terms of financing, concessional land allotment and tax holidays. “With private sector participation and the right policies, India would be well-placed to become one of the largest aviation markets by 2030,” says Ramesh Lingamaneni, chairman of Hyderabad-based low-cost airline Air Costa.
Air Costa is one of the carriers that aim to leverage the expected growth in air transport between tier 2 and 3 cities. “We aim to tap the burgeoning tier II market by stimulating growth through better air connectivity to the tier I cities. Our choice of Embraer aircraft (E170 with 67 seats and E190 with 112 seats) complements this vision,” says Air Costa CEO Capt. KN Babu.
Economic benefits
The aviation sector meets growing transportation needs of consumers—airlines registered in India carry 50 million passengers and 1.1 million tonnes of freight a year to, from and within India; more than 130,000 international flights depart India annually; domestically, more than 664,000 flights make 89 million seats available to passengers annually. It also offers better connectivity—for instance, daily there are 8 flights between Delhi and Dubai and more than 59 flights from Delhi to Bombay.
The sector contributes INR 330 billion (0.5%) to Indian GDP and provides 1.7 million jobs besides paying over INR 87.5 billion in tax including corporation tax levied on profits.
This is in addition to the long-term benefits to the economy. Through investments and use of advanced technology, the aviation sector generates more gross value added (GVA) per employee than the economy as a whole, raising the overall productivity of the economy.
Boosting tourism and trade
Air transport lies at the heart of Indian tourism. Through speed and convenience, air transport has expanded the possibilities of travel for tourists and business travelers alike, allowing more people to experience diversity of culture.Tourism, both for business and leisure purposes, makes a large contribution to the Indian economy, with foreign visitors spending over INR 548 billion in the Indian economy each year. Around 89 per cent of these visitors arrive by air which means foreign visitors who travel by air spend approximately INR 488 billion.
Considering air freight makes up 34.6 per cent of the value of global trade, aviation also provide a huge fillip to trade in the country.
Hampering environment
However, the growth of aviation happens at the cost significant damage to the environment. Aviation contributes to climate change by altering the composition of atmospheric gases. In addition to CO2, emissions from aviation combustion processes comprise NOx, SOx and VOC which pollute the fabric of atmosphere.
According to Intergovernmental Panel on Climate Change (IPCC), CO2 emissions will grow 2.8 per cent annually between 2000 and 2050 and are projected to make up 16 per cent of total transportation carbon emissions, pointing to the need for a shift towards solar powered aircrafts in the long run. IPCC also calculates the climate impact of aviation to be 1.96 times that of CO2 impact. In addition to its contribution to climate change, aviation hampers ambient air quality, affecting public health. This is besides the negative environmental impact of noise pollution contributed by the growing number of aircraft.
In the Indian context, the Directorate General of Civil Aviation (DGCA) under the Ministry of Civil Aviation keeps a check on aircraft noise and engine emissions in accordance with norms formulated by International Civil Aviation Organization (ICAO). It has also set up an Aviation Environmental Unit that seeks to provide guidance on fuel efficiency improvement, CO2 reduction or noise abatement. Besides, DGCA has mandated stakeholders such as airport authorities, airlines or air navigation service providers to create environmental units to submit fuel consumption data monthly to help build a country-wide CO2 emission inventory. However, there is scope for stricter norms to control aviation emissions and penalise defaulting stakeholders.
Against the background of growing opposition to Modi government’s Land Acquisition Bill that aims to ease the process of acquisition of land for industrial purposes, land acquisition for the proposed airports too will prove to be a tough nut to crack both politically and economically.
There are also concerns about supporting infrastructure and taxation. “There is a huge need for up gradation of the airports at tier 2 cities where the major growth should happen,” says Charles. “There is still scope for improvement in the airport infrastructure. Another concern is over-taxation – central and state taxes on fuel and maintenance as well as service taxes on air tickets are likely to hamper growth,” says Ramesh.
However, the silver lining is the expected growth in the number of aircraft as well as domestic and international passengers from India. This projected growth, along with India’s low air traffic density—72 compared with 282 in China and 2,896 in the US—signals a huge untapped potential.
As IATA CEO Tony Tyler put it, the world is focused on Indian aviation – from manufacturers, tourism boards, airlines to individual travellers, shippers and businessmen. Consensus among these stakeholders, right policies and focus on quality, cost and passenger interest will transform India to one of the largest aviation markets within a couple of decades.
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