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Sakshi of PRS Legislative Research discusses the government's ordinance-making power in the context of the National Food Security Ordinance in an Indian Express opinion editorial. On Wednesday, the Union cabinet approved the food security ordinance. The government has already introduced a National Food Security Bill in Parliament in December 2011. Parliamentary consideration on the bill has been initiated with the standing committee submitting its recommendations and the government proposing amendments to the law. After being listed on several occasions for discussion, members of Parliament began debating the bill in the last few days of the 2013 budget session. In spite of all this, the government has chosen to promulgate an ordinance. In all likelihood, Parliament will reconvene in a few weeks for the monsoon session. In this context, it would be useful to understand the ordinance-making power of government and its usage in the recent past. Under the Constitution, the power to make laws rests with the legislature. The executive has been given the power to make laws when Parliament is not in session and "immediate action" is necessary. In such scenarios, the president can issue an ordinance on the advice of the executive, to have the same effect as an act of Parliament. In the 1980s, the Supreme Court was confronted with a case where a state government repeatedly re-promulgated ordinances that had lapsed in previous assembly sessions. This led the SC to examine the ordinance-making power of government. The SC reasserted the constitutional principle that the primary law-making power rests with the legislature and not the executive. The executive is only given the legislative power to issue an ordinance to meet an "emergent situation". Such a situation arose in 2011 when, given that students were awaiting their degrees on the completion of their course, the government issued an ordinance to grant IIIT-Kancheepuram the status of an institute of national importance so that students could be awarded their degrees. Data over the last 60 years indicates that the highest number of ordinances, 34, were passed in 1993. Over the 15th Lok Sabha (2009-2013), there have been 16 ordinances, indicating a decline in the number of ordinances being issued every year. Once an ordinance is framed, it is to be laid before Parliament within six weeks of its first sitting. Parliament is empowered to either choose to pass the ordinance as law or let it lapse. Once the ordinance is laid in Parliament, the government introduces a bill addressing the same issue. This is typically accompanied by a memorandum tabled by the government, explaining the emergent circumstances that required the issue of an ordinance. Thereafter, the bill follows the regular law-making process. If Parliament does not approve the ordinance, it ceases to exist. The drafters of the Constitution created this check on the law-making power of the executive to reinforce the notion that law-making will remain the prerogative of the legislature. Earlier this year, in the aftermath of the Delhi gangrape, public pressure led the government to appoint a three-member committee under the late Justice J.S. Verma to suggest changes to laws relating to crimes against women. An amendment bill had already been pending in Parliament. In spite of this, the government brought in the Criminal Law Ordinance, giving effect to some of the committee's recommendations. Once Parliament reconvened, the government introduced a fresh bill replacing the ordinance, seeking to create more stringent provisions on matters related to sexual offences. It passed muster in both Houses. While the Criminal Law Ordinance is an illustration of an ordinance successfully passing through Parliament, there are examples of ordinances that have lapsed because they were not approved by Parliament. In 2004, a week after the winter session ended, the government issued an ordinance to give the Pension Fund Regulatory and Development Authority statutory powers as a regulator. Due to political opposition, the ordinance lapsed and, subsequently, the bill lapsed at the end of the 14th Lok Sabha. The government re-introduced it as a bill in 2011, which is currently pending in Parliament. Although the government has used its power to issue a food security ordinance, the law guaranteeing this right will have to stand scrutiny in Parliament. What remains to be seen is how Parliament debates the right to food in the upcoming monsoon session. That should give us some food for thought. For an analysis of the National Food Security Bill, refer to Sakshi's blog post here.
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.
