Recently, there have been reports of price crashes and distress sales in case of farm produce, such as tomatoes, mangoes, and garlic. In some cases, farmers have dumped their produce on roads. Produce such as fruits and vegetables are perishable and therefore have a short shelf life. Further, due to inadequate storage facilities and poor food processing infrastructure farmers have limited options but to sell the produce at prevailing market prices. This can lead to distress sales or roadside discards (in some cases to avoid additional cost of transportation).
Food processing allows raw food to be stored, marketed, or preserved for consumption later. For instance, raw agricultural produce such as fruits may be processed into juices, jams, and pickles. Activities such as waxing (for preservation), packaging, labelling, or ripening of produce also form part of the food processing industry.
Between 2001-02 and 2016-17, production of food grains grew annually at 1.7% on average. Production of horticulture crops surpassed food grains with an average growth rate of 4.8%. While production has been increasing over the years, surplus produce tends to go waste at various stages such as procurement, storage, and processing due to lack of infrastructure such as cold storages and food processing units.
Source: Horticulture Statistics at a Glance 2017, Union Budget 2018-19; PRS.
Losses high among perishables such as fruits and vegetables
Crop losses ranged between 7-16% among fruits and around 5% among cereals in 2015. The highest losses were witnessed in case of guava, followed by mango, which are perishable fruits. Perishables such as fruits and vegetables are more prone to losses as compared to cereals. Such crop losses can occur during operations such as harvesting, thrashing, grading, drying, packaging, transportation, and storage depending upon the commodity.
It was estimated that the annual value of harvest and post-harvest losses of major agricultural products at the national level was Rs 92,651 crore in 2015. The Standing Committee on Agriculture (2017) stated that such wastage can be reduced with adequate food processing facilities.
Sources: Annual Report 2016-17, Ministry of Food Processing Industries; PRS.
Inadequate food processing infrastructure
As previously discussed, perishables such as fruits and vegetables are more prone to damages as compared to cereals. Due to inadequate processing facilities in close proximity, farmers may be unable to hold their produce for a long time. Hence, they may be forced to sell their produce soon after harvest, irrespective of the prevailing market situations. Expert committees have recommended that agri-logistics such as cold chain infrastructure and market linkages should be strengthened.
Cold chain infrastructure: Cold chain infrastructure includes processing units, cold storages, and refrigerated vans. As of 2014, out of a required cold storage capacity of 35 million metric tonnes (MT), almost 90% (31.8 million MT) of the capacity was available (see Table 1). However, cold storage needs to be coupled with logistical support to facilitate smooth transfer of harvested value from farms to distant locations. This includes: (i) pack-houses for packaging and preparing fresh produce for long distance transport, (ii) refrigerated transport such as reefer vehicles, and (iii) ripening chambers to ripen raw produce before marketing. For instance, bananas which are harvested raw may be ripened in these chambers before being marketed.
While there are sufficient cold storages, there are wide gaps in the availability of other associated infrastructure. This implies that even though almost 90% (32 million tonnes) of cold storage capacity is available, only 15% of the required refrigerated transport exists. Further, the shortfall in the availability of infrastructure necessary for safe handling of farm produce, like pack-houses and ripening chambers, is over 90%.
Table 1: Gaps in cold chain infrastructure (2014)
| Facility | Required | Available | Gap | % gap |
| Cold storage (in million MT) |
35.1 |
31.8 | 3.2 |
9.3% |
| Pack-houses |
70,080 |
249 | 69,831 |
99.6% |
| Reefer vehicles |
61,826 |
9,000 | 52,826 |
85.4% |
| Ripening chambers |
9,131 |
812 | 8,319 |
91.1% |
To minimise post-harvest losses, the Standing Committee (2017) recommended that a country-wide integrated cold chain infrastructure network at block and district levels should be created. It further recommended that a Cold Chain Coordination and Monitoring Committee should be constituted at the district-level. The Standing Committee also recommended that farmers need to be trained in value addition activities such as sorting, grading, and pre-cooling harvested produce through facilities such as freezers and ripening chambers.
Between 2008 and 2017, 238 cold chain projects were sanctioned under the Scheme for Integrated Cold Chain and Value Addition Infrastructure. Grants worth Rs 1,775 crore were approved for these projects. Of this amount, Rs 964 crore (54%) has been released as of January 2018. Consequently, out of the total projects sanctioned, 114 (48%) are completed. The remaining 124 projects are currently under implementation.
Transport Facilities: Currently, majority of food grains and certain quantities of tea, potato, and onion are transported through railways. The Committee on Doubling Farmers Income had recommended that railways needs to upgrade its logistics to facilitate the transport of fresh produce directly to export hubs. This includes creation of adjoining facilities for loading and unloading, and distribution to road transport.
Mega Food Parks: The Mega Food Parks scheme was launched in 2008. It seeks to facilitate setting up of food processing units. These units are to be located at a central processing centre with infrastructure required for processing, packaging, quality control labs, and trade facilitation centres.
As of March 2018, out of the 42 projects approved, 10 were operational. The Standing Committee on Agriculture noted certain reasons for delay in implementation of projects under the scheme. These include: (i) difficulty in getting loans from banks for the project, (ii) delay in obtaining clearances from the state governments and agencies for roads, power, and water at the project site, (iii) lack of special incentives for setting up food processing units in Mega Food Parks, and (iv) unwillingness of the co-promoters in contributing their share of equity.
Further, the Standing Committee stated that as the scheme requires a minimum area of 50 acres, it does not to promote smaller or individual food processing and preservation units. It recommended that smaller agro-processing clusters near production areas must be promoted. The Committee on Doubling Farmers Income recommended establishment of processing and value addition units at strategic places. This includes rural or production areas for pulses, millets, fruits, vegetables, dairy, fisheries, and poultry in public private-partnership mode.
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.
