The spectacular growth of the economy during the last decade has changed the entire landscape of the transport sector in India, particularly the road and the air sectors. The considerable increase in disposable incomes has changed the profile of consumers as well as of service providers beyond recognition. While roads are teeming with cars of all sizes and brands, airports have become as crowded as railway stations and there has been a veritable explosion in the number of aircrafts flying in the skies.

Yet, the lingering feeling is one of frustration in trying to beat the chaos, despite more flyovers and glitzy airports. The reason is that while the sectors have grown due to the removal of the command and control regulations of the licence and permit era, they remain chaotic in operation either because of the complete absence of operational regulatory structures (as in roads and highways) or because of the deficits and inefficiencies of the structures put in place (as in aviation).

Ensuring the delivery of quality regulatory outcomes is a serious challenge in a chaotic democracy like India where the cacophony of debate on all sorts of issues is rather shrill but its quality poor and focus blurred. Shorn of all jargon, quality regulatory outcomes in any sector depend on three factors:
* Clear, coherent and transparent regulatory policies that promote competition;
* Independent regulators vested with substantive powers to control operations;
* Clear demarcation of jurisdiction between different regulators.

Seen from this perspective it is not difficult to fathom why the aviation sector in India gives the impression of growth amidst chaos.

Across the spectrum of its stakeholders, the sector has seven regulatory interfaces – service providers and airports, passengers and airports, cargo and airports, airlines and airports, airlines and passengers, airlines and cargo, and lastly, airlines and service providers. These seven interfaces are regulated by three regulatory authorities – the Airport Authority of India (AAI), the Directorate General of Civil Aviation (DGCA) and the Airport Regulatory Authority of India (AERA) – in a manner that leaves much to be desired. The AAI is essentially an operator. However, since it predates other regulatory authorities, historically, it has functioned as a regulator and still continues to do even after the establishment of the AERA. Operationalized in May 2009, the AERA has been empowered to regulate ‘aeronautical services’ in ‘major airports’ only. Thus the AAI continues to function as the de facto economic regulator for all the airports that it operates, which are not ‘major airports’ under the AERA Act. Apart from this limited mandate, the AERA has no powers to enforce service standards relating to quality, continuity and reliability of airport services; it can only ‘monitor’ them, whatever that means.

Then there are the three economic issues that ideally should have been brought under AERA’s purview. The first is the allotment of slots, the most important ‘economic right’ in aviation. At present slots are allotted either by the AAI or the private operator, as the case may be, in coordination with the DGCA, air force etc. According to a recent report, though, the civil aviation ministry now coordinates the allotment of slots.

The point is that this scarce economic right should be allocated by an independent regulator like AERA. The slot allocation system itself, based on ‘grandfather rights’ and the ‘use it or lose it rule’ (in case of mergers and acquisitions) is a major entry barrier to new entrants and encourages abuse of dominance. Though this is the current system in most of the world, pressure is mounting in the developed world to free up slots and allow them to be auctioned. The European Commission had also asked NERA, an economic consultancy firm, to carry out cost-benefit analysis of alternative allocation systems.

In India this sort of economic research and the consequent switch-over to a competition friendly system is not possible unless the deciding authority is an independent regulator. Secondly, route is also an ‘economic right’ and, therefore, route allocation should be managed by an authority like AERA. At present routes are allocated as per the route dispersal guidelines of the ministry, which, though intended to promote aviation in less developed areas, end up being an entry barrier for new airlines with less financial muscle.

Thirdly, AERA is supposed to regulate two economic interfaces – what the airport operator charges from airlines and what it charges from users. But the third interface – what the airlines charge from users – is not under any regulatory surveillance. It was recently reported that the DGCA was working on a new regulation to target fictitious bookings, artificial scarcity of seats and consequent higher ticket prices. While welcome in itself, the question arises as to why the DGCA, essentially a safety regulator, should do this. This area is a natural domain of the AERA.

However, it is in the area of air safety that the regulatory deficit is most stark. Surprisingly, the deficit is not due to lack of regulations but due to capacity constraints of DGCA and its lack of coordination with the airport operators/AAI. The complete chaos during the winter months, the inability of airlines to use the CAT III system, the shocking collapse of radar systems and the haphazard shutdown/opening of runways, particularly in Delhi, are enough evidence that the DGCA is out of its depth as the safety regulator. The fact that it is an attached office of the ministry is an added roadblock in any reform process.

The previous director general of civil aviation did try to clean up a lot of mess but it was only a matter of time before he stepped on the toes of his political masters in the government. Vijay Mallya’s Kingfisher Airways breached every rule in the rule-book but instead of grounding the airline in the interest of air safety this pathetic government chose to summarily transfer the upright director general!

After a couple of good policy initiatives – the open sky policy and the public-private partnership (PPP) route to modernisation of airports – the ministry seems totally bereft of ideas to make the aviation sector soar. It scored a self-goal by merging Indian Airlines with Air India, destroying both companies. The PPP initiative was good but the concession structured for the Delhi operator has proved to be a disaster. The AERA is a half-baked regulator and the DGCA totally unable to cope with the increased demands of air safety. A new civil aviation authority has been proposed in place of DGCA but the situation will not change unless the discretion of the minister to interfere with the regulatory process is removed completely. However, the present dispensation is so inept and self-serving that one cannot imagine this wish coming true anytime soon.