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)

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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)

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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)

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 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. 

On October 18, it was reportein the news that the central government has been given more time for framing rules under the Citizenship (Amendment) Act, 2019.  The President had given assent to this Act in December 2019 and the Act came into force in January 2020.   Similarly, about two years have passed since the new labour codes were passed by Parliament, and the final Rules are yet to be published.  This raises the question how long the government can take to frame Rules and what is the procedure guiding this.  In this blog, we discuss the same.

Under the Constitution, the Legislature has the power to make laws and the Executive is responsible for implementing them.  Often, the Legislature enacts a law covering the general principles and policies, and delegates the power to the Executive for specifying certain details for the implementation of a law.  For example, the Citizenship Amendment Act provides who will be eligible for citizenship.  The certificate of registration or naturalization to a person will be issued, subject to conditions, restrictions, and manner as may be prescribed by the central government through Rules.  Delay in framing Rules results in delay in implementing the law, since the necessary details are not available.  For example, new labour codes provide a social security scheme for gig economy workers such as Swiggy and Zomato delivery persons and Uber and Ola drivers.  These benefits as per these Codes are yet to be rolled out as the Rules are yet to be notified.

Timelines and checks and balances for adherence

Each House of Parliament has a Committee of Members to examine Rules, Regulations, and government orders in detail called the Committee on Subordinate Legislation.  Over the years, the recommendations of these Committees have shaped the evolution of the procedure and timelines for framing subordinate legislation.  These are reflected in the Manual of Parliamentary Procedures issued by the Ministry of Parliamentary Affairs, which provides detailed guidelines.

Ordinarily, Rules, Regulations, and bye-laws are to be framed within six months from the date on which the concerned Act came into force.   Post that, the concerned Ministry is required to seek an extension from the Parliamentary Committees on Subordinate Legislation.  The reason for the extension needs to be stated.   Such extensions may be granted for a maximum period of three months at a time.  For example, in case of Rules under the Citizenship Amendment Act, 2019, at an earlier instance, an extension was granted on account of the onset of the COVID-19 pandemic.

Activity

Timeline

  • Publication of Rules, Regulations, and Bye-Laws, where public consultation is required under the Act
  • A minimum of 30 days for public feedback
  • Consequently, for publication,
  • Three months, if the number of suggestions is small
  • Six months, if the number of suggestions is large
  • Publication of Rules, Regulations, and Bye-Laws, not requiring public consultation
  • Six months from the date on which the concerned Act came into force
  • Any extension for publication
  • A maximum of three months at a time

To ensure monitoring, every Ministry is required to prepare a quarterly report on the status of subordinate legislation not framed and share it with the Ministry of Law and Justice.  These reports are not available in the public domain.

Recommendations to address delays

Over the years, the Subordinate Legislation Committees in both Houses have observed multiple instances of non-adherence to the above timelines by various Ministries.  To address this, they have made the following key recommendations:

  • Statement on reasons for the delay: In 2011, Rajya Sabha Committee recommended that while laying Rules/Regulations before Parliament, the Ministry should also lay a statement explaining the reasons for the delay, if any.
  • Scrutiny of delays by the Cabinet Secretary:  In 2016, the Rajya Sabha Committee recommended that the Cabinet Secretary should continue the practice of calling the Secretaries of concerned Ministries/Departments, to explain the reasons for the delay in framing the subordinate legislation.  Each Ministry should send a quarterly status report to the Cabinet Secretariat.
  • Revisiting guidelines: In 2011, Lok Sabha Committee recommended that the 1986 guidelines should be revisited and all major recommendations of the Committee should be incorporated.  However, as per the Action Taken Report, the government observed that the ministries consider the extant guidelines adequate and these guidelines were re-iterated in 2012.

Are all Rules under an Act required to be framed?

Usually, the expressions used in an Act are “The Central Government may, by notification, make rules for carrying out the provisions of this Act.”, or “as may be prescribed”.  Hence, it may appear that the laws aim to enable rule-making instead of mandate rule-making.  However, certain provisions of an Act cannot be brought into force if the required details have not been prescribed under the Rules.  This makes the implementation of the Act consequent to the publication of respective Rules.  For example, the Criminal Procedure (Identification) Act, 2022 enables the police and certain other persons to collect identity-related information about certain persons.  It provides that the manner of collection of such information may be specified by the central government.  Unless the manner is prescribed, such collection cannot take place.

That said, some other rule-making powers may be enabling in nature and subject to discretion by the concerned Ministry.  In 2016, Rajya Sabha Committee on Subordinate Legislation examined the status of Rules and Regulations to be framed under the Energy Conservation Act, 2001.  It observed that the Ministry of Power had held that two Rules and three Regulations under this Act were not necessary.   The Ministry of Law and Justice had opined that those deemed not necessary were enabling provisions meant for unforeseen circumstances.  The Rajya Sabha Committee (2016) had recommended that where the Ministry does not feel the need for framing subordinate legislation, the Minister should table a statement in Parliament, stating reasons for such a conclusion.

Some key issues related to subordinate legislation

The Legislature delegates the power to specify details for the implementation of a law to the Executive through powers for framing subordinate legislation.  Hence, it is important to ensure these are well-scrutinised so that they are within the limits envisaged in the law.

  • Capacity of Committees on Subordinate Legislation:  Parliamentary Committees on Subordinate Legislation have the responsibility to examine Rules in detail.  In past, they have examined some key rules, regulations, and notifications regarding e-commerceliability of internet-based services, and demonetisation.  However, usually, they are able to examine only a fraction of subordinate legislation in detail.  For more details, please see the PRS discussion paper here.
  • Uniformity of standards:  Countries such as UKUSAAustralia, and Canada have overarching legislation for regulating the framing of subordinate legislation.  These laws provide for the manner of public consultation, timelines, drafting standards, and a common register.  India does not have any similar law.  In India, the detail whether public consultation for subordinate legislation is required or not, is specified in respective Acts.  The General Clauses Act, 1897 also governs certain aspects of the framing of subordinate legislation.  In addition, the Pre-Legislative Consultation Policy, 2014 guides the pre-legislative consultation on subordinate legislation.

See here for our recently published analysis of the Criminal Procedure (Identification) Rules, 2022, notified in September 2022.  Also, check out PRS analysis of: