The recent order of the ministry of environment and forests (MoE&F) rejecting the application for grant of forest clearance to the Orissa Mining Company (the Vedanta project) has raised a number of important questions. The order cited the company’s non-compliance with a number of laws. But the Vedanta case is just one example. There are several projects in the country where similar issues are relevant. The question really is, are the multiple laws that are applicable in such cases in harmony with each other or are they working at cross purposes? In a sector such as mining, doing business is inherently complicated. There are at least four broad aspects that need to be addressed—obtaining mining licences, securing environmental clearances, acquiring land, and rehabilitation of people affected by such projects. We take a look at each of the four broad areas, to understand how the applicable laws interact with one another. Obtaining mining licences Doing business in the mining sector first entails obtaining a licence for activities such as prospecting and mining. The Mines and Minerals (Development and Regulation) Act, 1957, lays down the framework for any prospecting, leasing or mining activity to be carried out for specified minerals, and the licences that need to be obtained. The Act allows the central government to frame the rules and conditions applicable both for grant of licences and for the actual activity carried out by enterprises. The licensing authority for mining activities is the state government. Securing environment clearances Environmental clearances for industrial activities are governed by a number of laws. Most activities require clearances under the Environment (Protection) Act, 1986. Additionally, for activities in forest areas, clearance is also required under the Forest (Conservation) Act, 1980. Acts pertaining to wildlife protection, bio-diversity and the quality of air and water may also be applicable. The Environment (Protection) Act, 1986, enables the central government to take measures for “protecting and improving the quality of the environment and preventing, controlling and abating environmental pollution”. These measures may include (among others) (a) laying down standards for the quality of the environment, (b) areas in which industries or operations may not be carried out, or carried out subject to certain safeguards. The rules framed under the Act make it compulsory for all new projects to take prior environmental clearance. For a specified category of activities clearance has to be obtained from the MoE&F, while for others, clearance has to be obtained from State Environment Impact Assessment Authorities (SEIAAs). The Forest (Conservation) Act, 1980, prohibits state governments and other authorities from any unauthorised change in the status of areas declared to be reserved forests, and any diversion of forests for non-forest purposes. It prohibits felling of trees within forest areas. Any such action has to be undertaken with the prior permission of the central government. To divert any forest area for non-forest purposes, state governments have to submit formal proposals to the Centre. State governments also have to show proposals for compensatory afforestation. Acquiring land for the project Acquiring land for projects has become increasingly contentious in recent years. The Land Acquisition Act of 1894 appears to have outlived its utility, which led the UPA-1 to introduce a Bill in the Parliament to bring a new legal framework to facilitate land acquisition. The Bill tried to address several critical aspects of land acquisition. It tried to redefine ‘public purpose’ somewhat more strictly than in the existing Act. ‘Public purpose’ was redefined to include defence purposes, infrastructure projects or for any project useful to the general public where 70% of the land has already been purchased. For acquisitions by companies, the Bill mandated that 70% of the land will have to be acquired directly from the land owners at market prices and that the government would step in under the Act to acquire the remaining 30% for the project. The Bill also aimed to provide for cases resulting in large-scale displacement. It stated that in such cases a social impact assessment study must be conducted. Tribals, forest dwellers and those with tenancy rights were also made eligible for compensation. It also mandated that the intended use of the land being acquired and the current market value of the land would have to be considered for determining compensation. The Bill lapsed when the Lok Sabha was dissolved in 2009. It is not known when the government proposes to reintroduce a Bill in the Parliament to address this issue of land acquisition. Rights of project-affected people When large projects are planned and land is acquired for those, people are often displaced from the project areas and need to be rehabilitated appropriately. The UPA-1 had introduced a Bill in the Parliament to create a legal framework for rehabilitation of project-affected people. However, the proposed Rehabilitation and Resettlement Bill, 2007, lapsed when the Lok Sabha was dissolved before the last general elections. But the UPA-1 government managed to pass a highly contested Bill that recognised the rights of scheduled tribes and other traditional forest dwellers. The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act passed in 2006 focuses on the rights of forest-dwelling Scheduled Tribes and traditional forest dwellers. The Act seeks to recognise and vest forest rights in forest dwelling Scheduled Tribes with respect to forest land and their habitat. The Act mentions 13 separate rights given to forest dwellers. These include (a) living in the forest for habitation or for self-cultivation for livelihood, (b) right to own, use or dispose of minor forest produce, (c) right to protect and conserve any community resource that they have been traditionally protecting and (d) individual and community rights of habitat for primitive tribal groups. These rights have to be formally recorded/recognised by state governments. The Act also prevents any modification of forest rights or the resettlement of forest dwellers unless the Gram Sabha of the village consents to the proposal in writing. There are additional requirements to be met if developmental activities are to be undertaken in tribal dominated areas (defined as Scheduled Areas in the Constitution). The Panchayat (Extension into Scheduled Areas) Act, 1996, extends the part of the Constitution providing for Panchayati Raj in rural areas to Scheduled Areas. The Act requires that government authorities consult the Panchayat or the Gram Sabha before acquiring land for development projects and for rehabilitating persons affected by such projects. At a conceptual level, there is no apparent contradiction in the applicable laws and each of the laws mentioned above appear to be necessary to ensure that there is fairness for all stakeholders involved. However, a distinction has to be made between the legal principles these laws seek to enforce, and procedural formalities that need to be complied with to be on the right side of the law. Also, a closer look at these individual laws and their implementation will reveal a number of loopholes that need to be plugged to ensure that the spirit and basic principles enshrined in each law are enforced efficiently. From the point of view of the company that intends to do business in India, all this adds up to a lot of time-consuming process. This is perhaps why the Doing Business index published annually by the World Bank group ranks India at 133 out of 183 counties in terms of ease of doing business. The challenge, going forward, is for us to strengthen processes that are fair to all stakeholders, but at the same time are not unduly burdensome on the company that seeks to make investments in the mining sector. By CV Madhukar and Anirudh Burman This was published as an article in Financial Express on September 2, 2010
India is one of the fastest growing aviation markets in the world. Its domestic traffic makes up 69% of the total airline traffic in South Asia. India’s airport capacity is expected to handle 1 billion trips annually by 2023. The Ministry of Civil Aviation is responsible for formulating national aviation policies and programmes. Today, Lok Sabha will discuss and vote upon the budget of the Ministry of Civil Aviation. In light of this, we discuss key issues with the aviation sector in India.
The aviation sector came under severe financial stress during the Covid-19 pandemic. After air travel was suspended in March 2020, airline operators in India reported losses worth more than Rs 19,500 crore while airports reported losses worth more than Rs 5,120 crore. However, several airline companies were under financial stress before the pandemic affected passenger travel. For instance, in the past 15 years, seventeen airlines have exited the market. Out of those, two airlines, Air Odisha Aviation Pvt Ltd and Deccan Charters Pvt Ltd exited the market in 2020. Air India has been reporting consistent losses over the past four years. All other major private airlines in India such as Indigo and Spice Jet faced losses in 2018-19.
Figure 1: Operating profit/loss of major airlines in India (in Rs crore)
Note: Vistara Airlines commenced operations in 2015, while Air Asia began in 2014; Negative values indicate operating loss.
Source: Unstarred Question 1812 answered on August 4, 2021, and Unstarred Question 1127 answered on September 21, 2020; Rajya Sabha; PRS.
Sale of Air India
Air India has accounted for the biggest expenditure head of the Ministry of Civil Aviation since 2011-12. Between 2009-10 and 2020-21, the government spent Rs 1,22,542 crore on Air India through budgeted allocations. In October 2021, the sale of Air India to Talace Ltd., which is a subsidiary of Tata Sons Pvt Ltd, was approved. The bid for Air India was finalised at Rs 18,000 crore.
Up to January 2020, Air India had accumulated debt worth Rs 60,000 crore. The central government is repaying this debt in the financial year 2021-22. After the finalisation of the sale, the government allocated roughly Rs 71,000 crore for expenses related to Air India.
In addition to loan repayment, in 2021-22, the government will provide Air India with a fresh loan (Rs 4,500 crore) and grants (Rs 1,944 crore) to recover from the shock of Covid-19. To pay for the medical benefits of retired employees of Air India, a recurring expense of Rs 165 crore will be borne by the central government each year.
In 2022-23, Rs 9,260 crore is allocated towards servicing the debt of AIAHL (see Table 1). AIAHL is a Special Purpose Vehicle (SPV) formed by the government to hold the assets and liabilities of Air India while the process of its sale takes place.
Table 1: Breakdown of expenditure on Air India (in Rs crore)
|
Major Head |
2020-21 Actual |
2021-22 RE |
2022-23 BE |
% change from 2021-22 RE to 2022-23 BE |
|
|
Equity infusion in AIAHL |
- |
62,057 |
- |
-100% |
|
|
Debt servicing of AIAHL |
2,184 |
2,217 |
9,260 |
318% |
|
|
Medical benefit to retired employees |
- |
165 |
165 |
0% |
|
|
Loans to AI |
- |
4,500 |
- |
-100% |
|
|
Grants for cash losses during Covid-19 |
- |
1,944 |
- |
-100% |
|
|
Total |
2,184 |
70,883 |
9,425 |
-87% |
|
Note: BE – Budget Estimate; RE – Revised Estimate; AAI: Airports Authority of India; AIAHL – Air India Asset Holding Limited; AI – Air India. Percentage change is from RE 2021-22 to BE 2022-23.
Source: Demands for Grants 2022-23, Ministry of Civil Aviation; PRS.
Privatisation of Airports
Airports Authority of India (AAI) is responsible for creating, upgrading, maintaining and managing civil aviation infrastructure in the country. As on June 23, 2020, it operates and manages 137 airports in the country. Domestic air traffic has more than doubled from around 61 million passengers in 2013-14 to around 137 million in 2019-20. International passenger traffic has grown from 47 million in 2013-14 to around 67 million in 2019-20, registering a growth of over 6% per annum. As a result, airports in India are witnessing rising levels of congestion. Most major airports are operating at 85% to 120% of their handling capacity. In response to this, the government has decided to privatise some airports to address the problem of congestion.
AAI has leased out eight of its airports through Public Private Partnership (PPP) for operation, management and development on long term lease basis. Six of these airports namely, Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram, and Mangaluru have been leased out to M/s Adani Enterprises Limited (AEL) for 50 years (under PPP). The ownership of these airports remains with AAI and the operations will be back with AAI after the concession period is over. The Standing Committee on Transport (2021) had noted that the government expects to have 24 PPP airports by 2024.
Figure 2: Allocation towards AAI (in Rs crore)
Note: BE – Budget Estimate; RE – Revised Estimate; AAI – Airports Authority of India; IEBR – Internal and Extra-Budgetary Resources;
Source: Demand for Grant documents, Ministry of Civil Aviation; PRS.
The Committee also noted a structural issue in the way airport concessions are given. As of now, entities that bid the highest amount are given the rights to operate an airport. This leads them to pass on the high charge to airline operators. This system does not consider the actual cost of the services and leads to an arbitrary increase in the cost of airline operators. The Ministry sees the role of AAI in future policy issues to include providing high quality, safe and customer-oriented airport and air navigation services. In 2022-23, the government has allocated Rs 150 crore to AAI, which is almost ten times higher than the budget estimates of 2021-22.
Regional Connectivity Scheme (RCS-UDAN)
The top 15 airports in the country account for about 83% of the total passenger traffic. These airports are also close to their saturation limit, and hence the Ministry notes that there is a need to add more Tier-II and Tier-III cities to the aviation network. The Regional Connectivity Scheme was introduced in 2016 to stimulate regional air connectivity and make air travel affordable to the masses. The budget for this scheme is Rs 4,500 crore over five years from 2016-17 to 2021-22. As of December 16, 2021, 46% of this amount has been released. In 2022-23, the scheme has been allocated Rs 601 crore, which is 60% lower than the revised estimates of 2021-22 (Rs 994 crore).
Under the scheme, airline operators are incentivised to operate on under-served routes by providing them with viability gap funding and airport fee waivers. AAI, which is the implementing agency of this scheme, has sanctioned 948 routes to boost regional connectivity. As of January 31, 2022, 43% of these routes have been operationalised. As per the Ministry, lack of availability of land and creation of regional infrastructure has led to delays in the scheme. Issues with obtaining licenses and unsustainable operation of awarded routes also contribute to the delay. As per the Ministry, these issues, along with the setback faced due to the pandemic acted as major obstacles for the effective utilisation of funds.
Figure 3: Expenditure on Regional Connectivity Scheme (in Rs crore)
Note: BE – Budget Estimate; RE – Revised Estimate;
Source: Demand for Grants documents, Ministry of Civil Aviation; PRS.
Potential of air cargo
The Standing Committee on Transport (2021) had noted India’s cargo industry’s huge potential with respect to its geographical location, its growing economy, and its growth in domestic and international trade in the last decade. In 2019-20, all Indian airports together handled 3.33 million metric tonnes (MMT) of freight. This is much lower than the cargo handled by Hong Kong (4.5 MMT), Memphis (4.8 MMT), and Shanghai (3.7 MMT), which are the top three airports in terms of the volume of freight handled. The Standing Committee on Transport (2021) has noted inadequate infrastructure as a major bottleneck in developing the country’s air cargo sector. To reduce such bottleneck, it recommended the Ministry to establish dedicated cargo airports, and automate air cargo procedures and information systems to streamline redundant processes.
The Committee has also highlighted that the Open Sky Policy enables foreign cargo carriers to freely operate cargo services to and from any airports in India having customs/immigration facilities. They account for 90-95% of the total international cargo carried to and from the country. On the other hand, Indian air cargo operators face discriminatory practices and regulatory impediments for operating international cargo flights in foreign countries. The Committee urged the Ministry to provide a level-playing field for Indian air cargo operators and to ensure equal opportunities for them. The Ministry revised the Open Sky Policy in December 2020. Under the revised policy, the operations of foreign ad hoc and pure non-scheduled freighter charter service flights have been restricted to six airports - Bengaluru, Chennai, Delhi, Kolkata, Hyderabad, and Mumbai.
Rising cost of Aviation Turbine Fuel
The cost of Aviation Turbine Fuel (ATF) forms around 40% of the total operating cost of airlines and impacts their financial viability. ATF prices have been consistently rising over the past years, placing stress on the balance sheets of airline companies. As per recent news reports, airfares are expected to rise as the conflict between Russia and Ukraine is making ATF costlier.
ATF attracts VAT which is variable across states and does not have a provision for input tax credit. High rates of aviation fuel coupled with high VAT rates are adversely affecting airline companies.
Table 2: Expenditure on ATF by airlines over the years (in Rs crore)
|
Year |
National Carriers |
Private Domestic Airlines |
|
2016-17 |
7,286 |
10,506 |
|
2017-18 |
8,563 |
13,596 |
|
2018-19 |
11,788 |
20,662 |
|
2019-20 |
11,103 |
23,354 |
|
2020-21 |
3,047 |
7,452 |
Source: Unstarred Question 2581, Rajya Sabha; PRS.
The Ministry, in January 2020, has reduced the tax burden on ATF by eliminating fuel throughput charges that were levied by airport operators at all airports across India. Central excise on ATF was reduced from 14% to 11% w.e.f. October 11, 2018. State governments have also reduced VAT/Sales Tax on ATF drawn on RCS airports to 1% or less for 10 years. For non-RCS-UDAN operations, various state governments have reduced VAT/Sales Tax on ATF to within 5%. The Standing Committee on Transport (2021) has recommended ATF to be included within the ambit of GST and that applicable GST should not exceed 12% on ATF with full Input Tax Credit.
For more details, please refer to the Demand for Grants Analysis of the Ministry of Civil Aviation, 2022-23.
