Owais Crawford
In 2020, India's Finance Minister Nirmala Sitharaman announced that six more airports would be auctioned under a public-private partnership model. This decision was part of a Rs 20 lakh crore package declared by Prime Minister Narendra Modi. The auction of these airports is expected to bring benefits to the aviation sector, including reduced fuel costs and flying time, as well as optimal utilisation of airspace. Additionally, an investment of Rs 13,000 crore is expected to be made by private players in 12 airports auctioned in the first and second rounds.
| Characteristics | Values |
|---|---|
| Number of airports | 6 |
| Location | India |
| Model | Public-Private Partnership (PPP) |
| Announced by | Finance Minister Nirmala Sitharaman |
| Purpose | To develop the airports and ease restrictions on the utilisation of Indian airspace |
| Additional investment | Rs 13,000 crore by private players in 12 airports auctioned in the first and second rounds |
| Expected benefits | Reduced fuel costs and flying time, increased aircraft component repair and airframe maintenance, improved efficiency of civilian flying |
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What You'll Learn
Airports to be auctioned under a public-private partnership model
In 2020, India's Finance Minister Nirmala Sitharaman announced that six more airports would be auctioned under a public-private partnership (PPP) model. This decision was part of the Rs 20 lakh crore package declared by Prime Minister Narendra Modi. The auction of these airports aims to develop them through private participation, with an additional investment of Rs 13,000 crore made by private players in 12 airports auctioned in the first and second rounds.
This move is expected to bring benefits to the aviation sector, including a total benefit of Rs 1,000 crore per year, according to Sitharaman. She also mentioned that restrictions on the utilisation of Indian airspace will be eased, leading to optimal utilisation of airspace, reduced fuel costs, and shorter flying times.
While the specific airports to be auctioned under this PPP model were not explicitly mentioned, it is part of a broader trend in India towards privatisation and PPP models in infrastructure development, including airports. This decision also aligns with the Indian government's focus on improving efficiency and attracting investment in the aviation sector.
In contrast, Brazil has also auctioned several regional airports to private investors in recent years. In 2021, the Brazilian government privatised 22 airports across the country, divided into three blocks: South, Central, and North. This move was expected to contribute significantly to the local aviation market and the Brazilian economy, with demand expected to double over the next 15 years.
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Finance Minister Nirmala Sitharaman announces auction
Nirmala Sitharaman, India's Finance Minister, announced the auction of six airports in the country. The auctions will be carried out under a public-private partnership model. This decision was announced as part of a Rs 20 lakh crore package declared by Prime Minister Narendra Modi. The auctions aim to develop the airports through private participation, with an expected additional investment of Rs 13,000 crore by private players in 12 airports auctioned in previous rounds.
Sitharaman highlighted that the auctions will bring several benefits to the aviation sector, including a total benefit of Rs 1,000 crore per year. She also mentioned that restrictions on the utilisation of Indian airspace will be eased, resulting in more efficient civilian flying. This will lead to optimal utilisation of airspace, reducing fuel costs and flying time for airlines and passengers.
The announcement of the airport auctions is part of a series of economic stimulus measures unveiled by Sitharaman. She has been recognised for her contributions to India's economic growth and has received accolades such as the Business Reformer of the Year award. Sitharaman has also played a crucial role in India's response to the COVID-19 pandemic, leading the Economic Response Task Force.
As the Finance Minister, Sitharaman has actively engaged in international cooperation and sought to attract foreign investment to India. She has held meetings with global leaders, including the UK Chancellor, to discuss economic and financial collaboration. Additionally, she has emphasised India's economic resilience and the potential for growth in various sectors, including banking and fintech. Sitharaman's efforts have contributed to India becoming the fifth-largest economy in the world, with significant GDP growth.
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Rs 20 lakh crore COVID-19 relief package
In May 2020, the Indian government announced a Rs 20 lakh crore COVID-19 relief package, also known as "Atmanirbhar Bharat", to support the economy during the pandemic. The package, equivalent to nearly 10% of the national GDP, was announced by Prime Minister Narendra Modi and detailed by Finance Minister Nirmala Sitharaman over a series of press conferences.
The relief package aimed to provide support to various sectors of society affected by the nationwide lockdown, including migrant workers, farmers, and small businesses. One of the key measures was to boost liquidity and help micro, small, and medium enterprises (MSMEs) benefit from government schemes. The package included collateral-free automatic loans to MSMEs worth Rs 3 lakh crores and a subordinate debt of Rs 20,000 crores for struggling MSMEs. The government also planned to infuse Rs. 50,000 crores via equity into MSMEs through a Fund of Funds.
In addition to supporting MSMEs, the package offered a credit programme for street vendors and farmers, with loans of up to Rs 10,000 available. The tax regime for aircraft Maintenance, Repair, and Overhaul (MRO) was rationalised, and restrictions on the utilisation of Indian airspace were eased to improve efficiency and reduce costs for the aviation sector. The government also announced plans to auction six more airports under a public-private partnership model to further develop the aviation sector.
While the relief package was well-received by economists, some criticised it for relying heavily on loan offerings rather than providing comprehensive relief. The actual impact of the package on the GDP was also questioned, with some suggesting that it accounted for only 1% of the GDP. Despite this, the package was expected to have a positive impact on the economy and support the revival of various sectors affected by the pandemic.
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Private investment in 12 airports
In 2020, India's Finance Minister Nirmala Sitharaman announced a Rs 20 lakh crore package declared by Prime Minister Narendra Modi. As part of this package, six more airports were to be auctioned with the aim of developing them under a Public-Private Partnership (PPP) model. An additional investment of Rs 13,000 crore would be made by private investors in 12 airports auctioned in the first and second rounds. Sitharaman also announced the easing of restrictions on the utilisation of Indian airspace, which would bring "optimal utilisation of airspace and reduce fuel costs and flying time".
The six airports to be auctioned in India under the PPP model are yet to be named. However, it is clear that the PPP model is becoming an increasingly popular way to develop and manage airports. In Brazil, for example, 22 regional airports were auctioned to private investors in 2021, raising approximately 3.3 billion reais (about US$588 million). The private concessions for these airports will last 30 years.
The auctioning of airports to private investors can bring a range of benefits. In the case of Brazil, the auctions are expected to benefit the country's overall aviation industry growth. Cornelis van Rij, the Netherlands ambassador in Brazil, commented that:
> "Today’s numbers confirm that Brazil is seriously addressing outlined issues, increasing competitiveness in the local aviation market and bringing significant rewards to the sector. With demand set to double over the next 15 years, the economic contribution of aviation to the Brazilian economy could amount to more than USD$88 billion per year and the supporting of more than 1.4 million jobs."
In India, the auctioning of six airports and the additional investment in 12 airports is expected to bring a total benefit of Rs 1,000 crore per year for the aviation sector, according to Sitharaman.
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Aircraft MRO tax regime rationalised
Background
In 2020, India's Finance Minister, Nirmala Sitharaman, announced a Rs 20 lakh crore package declared by Prime Minister Narendra Modi. As part of this package, the government decided to auction six more airports for private participation under a Public-Private Partnership (PPP) model. This decision was made to encourage the development of these airports and to optimise the utilisation of airspace, thereby reducing fuel costs and flying time.
Aircraft MRO Tax Regime Rationalisation
The tax regime for aircraft Maintenance, Repair, and Overhaul (MRO) in India has been a pressing issue for the aviation industry. Before the rationalisation, the MRO industry in India constituted only one per cent of the global market and was valued at around 31,500 crore. The introduction of the Goods and Service Tax (GST) in 2016 significantly impacted the growth of the MRO industry, with Indian carriers preferring to seek MRO services in countries with lower taxation rates, such as Singapore, Sri Lanka, Malaysia, Dubai, and China.
The high taxation rate of 18% on MRO services in India, compared to lower rates in competing countries, created a cost disadvantage for Indian MRO companies, making it difficult for them to compete with overseas players. This resulted in a gradual decline in the Indian MRO business, with a significant number of companies shutting down their operations.
Recognising the need to create a level playing field and prevent the collapse of the industry, the government took steps to rationalise the tax structure for MRO services. In March 2020, the GST Council announced a reduction in the GST rate for MRO services from 18% to 5%, with full input tax credit. Additionally, MRO services provided to foreign recipients in India would be treated as exports, eliminating the tax burden on these services.
The policy change was well-received by the industry, with expectations of high growth rates and the creation of 70,000 to 100,000 new jobs in the coming years. The rationalisation of the tax regime for MRO services is expected to bring MRO business to India and reduce the dependence on foreign MRO service providers, strengthening India's aviation sector.
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