The Airports Economic Regulatory Authority of India (Amendment) Bill, 2021 was passed by Parliament on August 4, 2021.  It amends the Airports Economic Regulatory Authority of India Act, 2008.  This Bill was introduced in Lok Sabha during the budget session this year in March 2021.  Subsequently, it was referred to the Standing Committee on Transport, Tourism, and Culture, which submitted its report on July 22, 2021.

Typically, cities have one civilian airport which provides all aeronautical services in that area.  These services include air traffic management, landing and parking of aircraft, and ground handling services.  This makes airports natural monopolies in the area.  To ensure that private airport operators do not misuse their monopoly, the need for an independent tariff regulator in the airport sector was felt.  Hence, the Airport Economic Regulatory Authority (AERA) was established as an independent body under the 2008 Act to regulate tariffs and other charges (development fee and passenger service fee) for aeronautical services at major airports.  

For the remaining airports, these tariffs are determined by the Airports Authority of India (AAI), which is a body under the Ministry of Civil Aviation.  In addition, AAI leases out airports under the public-private partnership (PPP) model for operation, management, and development.  Before AERA was set up, AAI determined and fixed the aeronautical charges for all airports.  It also prescribed performance standards for all airports and monitored them.  Various committees had noted that AAI performed the role of airport operator as well as the regulator, which resulted in a conflict of interest.

The 2008 Act designates an airport as a major airport if it has an annual passenger traffic of at least 35 lakh.  The central government may also designate any airport as a major airport through a notification.  The Bill adds that the central government may group airports and notify the group as a major airport.  Thus, when a small airport will be clubbed in a group and the group is notified as a major airport, its tariff will be determined by AERA instead of AAI.  Note that AERA will not determine the tariff if such tariff or tariff structures or the amount of development fees has been incorporated in the bidding document, which is the basis for the award of operatorship of that airport.

The amendments under the Bill raise some concerns regarding the grouping of airports and the capacity of the regulator.

  • Grouping of airports: The Statement of Objects and Reasons of the Bill states that government will club together profit-making and loss-making airports and offer them as a package in PPP mode to the prospective bidders.  This may be a policy decision to revive loss-making airports.  With the passage of the Bill, AERA will treat a group of airports as one entity.  One of the ways in which tariffs may be structured for the grouped entity would be through cross-subsidies.  This would involve compensating loss-making airports with the revenue generated from the profit-making airports.  If such a model is used, it may increase the cost of services to the end-consumers of profit-making airports or could reduce the profitability of such airports.  The experiences from other sectors such as electricity show that cross-subsidisation may lead to pricing problems in long term. 
     
  • Capacity of the regulator: AERA was created to provide a level playing field in the aviation sector and resolve the conflict of interest that arises with AAI both operating and regulating tariffs at airports.  During the examination of the AERA Bill, 2007 by the Standing Committee, the Ministry of Civil Aviation informed the Committee that AERA should regulate tariff and monitor performance standards only at major airports.  Depending upon future developments in the sector, and as the regulator built its capacity, other functions could be subsequently assigned to the regulator.

As of 2020, there are 125 operational airports in India (includes international airports, customs airports, and civil enclaves).  The number of airports under the purview of AERA increased from 11 in 2007 to 24 in 2019.  For the remaining airports, tariffs are still determined by AAI.  In the last five years (2014 to 2019), air passenger traffic increased from 11.3 crore to 34.9 crore (which is an annual growth rate of 10%).  Till 2030-31, air traffic in the country is expected to continue growing at an average annual rate of 10-11%

Before 2019, an airport with annual passenger traffic of at least 15 lakh was considered a major airport.  In 2019, the AERA Act was amended to increase this threshold to 35 lakh.  The Statement of Objects and Reasons of the 2019 Bill stated that the exponential growth of the aviation sector has put tremendous pressure on AERA, while its resources are limited.  Therefore, if too many airports come under the purview of AERA, it will not be able to perform its functions efficiently.  Consequently, in 2019, the number of airports under the purview of AERA was reduced.  Now, with the passage of the 2021 Bill, AERA will have to again regulate tariffs at more airports as and when notified by the central government.  Thus, the capacity of AERA may be needed to be enhanced for extending its scope to other airports.

Table 1: List of major airports in India (as of June 2019)

Ahmedabad

Delhi  

Mumbai  

Amritsar  

Goa  

Patna  

Bengaluru  

Guwahati  

Pune  

Bhubaneswar     

Hyderabad  

Raipur  

Calicut  

Jaipur  

Thiruvananthapuram     

Chandigarh  

Kolkata  

Tiruchirappalli     

Chennai  

Lucknow  

Varanasi  

Cochin  

Mangalore  

Kannur 

Source: AERA website as accessed on August 2, 2021; PRS. 

Recently, the Karnataka legislature passed the Bruhat Bengaluru Mahanagara Palike (BBMP) Bill, 2020.  BBMP is the municipal corporation of the Greater Bengaluru metropolitan area.  The BBMP Act, 2020 seeks to improve decentralisation, ensure public participation, and address certain administrative and structural concerns in Bengaluru.  In this blog, we discuss some common issues in urban local governance in India, in the context of Bengaluru’s municipal administration.

The Constitution (74th Amendment) Act, 1992 provided for the establishment of urban local bodies (ULBs) (including municipal corporations) as institutions of local self-government.  It also empowered state governments to devolve certain functions, authority, and power to collect revenue to these bodies, and made periodic elections for them compulsory. 

Urban governance is part of the state list under the Constitution.  Thus, the administrative framework and regulation of ULBs varies across states.  However, experts have highlighted that ULBs across India face similar challenges.  For instance, ULBs across the country lack autonomy in city management and several city-level functions are managed by parastatals (managed by and accountable to the state).  Several taxation powers have also not been devolved to these bodies, leading to stressed municipal finances.  These challenges have led to poor service delivery in cities and also created administrative and governance challenges at the municipal level.

BBMP was established under the Karnataka Municipal Corporation Act, 1976 (KMC Act).  The BBMP Act, 2020 replaces provisions of the KMC Act, 1976 in its application to Bengaluru.  It adds a new level of zonal committees to the existing three-tier municipal structure in the city, and also gives the Corporation some more taxation powers.  Certain common issues in urban local governance in India, with provisions related to them in the BBMP Act, 2020 are given below.

Functional overlap with parastatals for key functions

The Constitution (74th Amendment) Act, 1992 empowered states to devolve the responsibility of 18 functions including urban planning, regulation of land use, water supply, and slum upgradation to ULBs.  However, in most Indian cities including Bengaluru, a majority of these functions are carried out by parastatals.  For example, in Bengaluru, the Bengaluru Development Authority is responsible for land regulation and the Karnataka Slum Clearance Board is responsible for slum rehabilitation. 

The BBMP Act, 2020 provides the Corporation with the power and responsibility to prepare and implement schemes for the 18 functions provided for in the Constitution (74th Amendment) Act, 1992.  However, it does not provide clarity if new bodies at the municipal level will be created, or the existing parastatals will continue to perform these functions and if so, whether their accountability will shift from the state to the municipal corporation. 

This could create a two-fold challenge in administration.  First, if there are multiple agencies performing similar functions, it could lead to a functional overlap, ambiguity, and wastage of resources.  Second, and more importantly, the presence of parastatals that are managed by and accountable to the state government leads to an erosion of the ULB’s autonomy.  Several experts have highlighted that this lack of autonomy faced by municipal corporations in most Indian cities leads to a challenge in governance, effective service delivery, and development of urban areas.

An Expert Committee on Urban Infrastructure (2011) had recommended that activity mapping should be done for the 18 functions.  Under this, functions in the exclusive domain of municipalities and those which need to be shared with the state and the central government must be specified.  Experts have also recommended that the municipality should be responsible for providing civic amenities in its jurisdiction and if a parastatal exercises a civic function, it should be accountable to the municipality.

Stressed municipal finances

Indian ULBs are amongst the weakest in the world in terms of fiscal autonomy and have limited effective devolution of revenue.  They also have limited capacity to raise resources through their own sources of revenue such as property tax.  Municipal revenue in India accounts for only one percent of the GDP (2017-18).  This leads to a dependence on transfers by the state and central government.

ULBs in states like Uttar Pradesh, Uttarakhand, Bihar, Jharkhand, Rajasthan, and Haryana are in poor financial condition.  This has been attributed to limited powers to raise revenue and levy taxes, and problems in the management of existing resources.  For instance, the finances of Bihar’s ULBs were assessed to be poor because of: (i) delays in release of grants, (ii) inadequate devolution of funds, and (iii) delays in revision of tax rates and assessments of landholdings.

In comparison, Karnataka ranks high among Indian states in key indicators for fiscal capacity like collection of property taxes, grants from Central Finance Commissions, and state government transfers.  The BBMP Act, 2020 further increases the taxation powers of the Corporation, by allowing it to impose taxes on professions and entertainment.  

Experts have recommended that the central government and the respective state government should provide additional funds and facilitate additional funding mechanisms for ULBs to strengthen their finances.  The revenue of ULBs can be augmented through measures including assignment of greater powers of taxation to the ULBs by the state government, reforms in land and property-based taxes (such as the use of technology to cover more properties), and issuing of municipal bonds (debt instruments issued by ULBs to finance development projects). 

Powers of elected municipal officials

The executive power with state-appointed municipal Commissioners and elected municipal officers differs across states.  States like Tamil Nadu and Gujarat, and cities like Chennai and Hyderabad vest the executive power in the Commissioner.  In contrast, the executive power of the Corporation is exercised by a Mayor-in council (consisting of the Mayor and up to 10 elected members of the Corporation) in Kolkata and Madhya Pradesh.  This is unlike large metropolitan cities in other countries like New York and London, where elected Mayors are designated as executive heads.  Experts have noted that charging Commissioners with executive power diluted the role of the Mayor and violated the spirit of self-governance.

Under the BBMP Act, 2020, both the elected Mayor and the state-appointed Chief Commissioner exercise several executive functions.  The Mayor is responsible for approving contracts and preparing the budget estimate for the Corporation.  He is also required to discharge all functions assigned to him by the Corporation.  On the other hand, executive functions of the Chief Commissioner include: (i) selling or leasing properties owned by the Corporation, and (ii) regulating and issuing instructions regarding public streets. 

The Expert Committee on Urban Infrastructure (2011) has recommended that the Commissioner should act as a city manager and should be recruited through a transparent search-cum-selection process led by the Mayor.  A Model Municipal law, released by the Urban Development Ministry in 2003, provided that the executive power should be exercised by an Empowered Standing Committee consisting of the Mayor, Deputy Mayor, and seven elected councillors.  

Management of staff and human resources

Experts have noted that municipal administration in India suffers from staffing issues which leads to a failure in delivering basic urban services.  These include overstaffing of untrained manpower, shortage of qualified technical staff and managerial supervisors, and unwillingness to innovate in methods for service delivery. 

The BBMP Act, 2020 provides that the Corporation may make bye-laws for the due performance of duties by its employees.  However, it does not mention other aspects of human resource management such as recruitment and promotion.  A CAG report (2020) looking at the implementation of the Constitution (74th Amendment) Act, 1992 in Karnataka has observed that the power to assess municipal staff requirements, recruiting such staff, and determining their pay, transfer and promotion vests with the state government.  This is in contrast with the recommendations of several experts who have suggested that municipalities should appoint their personnel to ensure accountability, adequate recruitment, and proper management of staff.

Other states including Kerala, Maharashtra and Tamil Nadu also allow the state governments to regulate recruitment and staffing for ULBs.  In cities like Mumbai, and Coimbatore, and some states like Gujarat and Madhya Pradesh, while the recruitment process is conducted by the respective municipal corporations, the final sanction for hiring staff lies with the state government.