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Regional connectivity scheme readies for take-off

Aviation secretary said it would be finalised by the middle of next month

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The period for the scheme is three years based on load factors of the flights
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Suggestions put forth by states and airlines during their consultation with the Ministry of Civil Aviation officials on Friday on regional connectivity scheme (RCS) include widening of distance band for RCS flights, extension of the scheme period, lowering of entry barrier, among a host of others.

RCS, which will offer incentives and subsidy on unserved and underdeveloped regional flight routes, is an important part of the National Civil Aviation Policy (NCAP) announced by the government recently to boost regional air traffic.

R N Choubey, aviation secretary, said the one of the major demands from the states was to relax the distance band of RCS flights. In the draft RCS put out for feedback from various stakeholders, the ministry has set the minimum flight distance at 200 km and maximum limit at 800 km. States have asked for both to be stretched.

Choubey said the distance band was decided taking into consideration that distance below 200 km was easily reachable by road and above 800 km it would not be regional.

"Requests have been received that both (200 km and 800 km) need to be changed. One of them (states) said make it on case-by-case basis. We will certainly examine this suggestion that has been made," said aviation ministry bureaucrat.

He said all states have agreed to come forward and provide sops to develop "dormant" airports and airstrips in the country.

The draft RCS has proposed a string subsidies and incentives in terms of lower levies and charges, easy entry and exit and temporary funding to make a regional sector viable.

The government is looking to create a regional connectivity fund (RCF) to fund the scheme through a levy on metro flights. States will contribute 20% to it. The gap between costs and revenues of a RCS flight will be compensated by the government via viability gap funding (VGF).

The period of the scheme is three years and based on the load factor of the flights on these routes. Airlines have asked it to be extended.

Choubey said the three-year period was fixed keeping in mind that typically it took two years for the viability of a route to be established. He said the government had given one more year over that period.

He said the objective of the scheme was that instead of leaving the development of a route entirely to market forces, which would take longer, to hasten it through subsidy and incentives.

Choubey said the ministry would "examine" this suggestion of the airlines.

Pankaj Pandit, Bangalore-based aviation analyst, said the entire RCS, which was based on sops, concessions and cuts in levy, was "retrograde".

"It (RCS) is retrograde. The days of subsidies and doles are over. It (regional connectivity) will not grow because of false trade wind being created. How long can you sustain on subsidy? Three years is good enough," he said.

Pandit believes sustainability of a route was dependent on three factors: affordability, demand and supply and development of alternative travel modes like railways and road.

The airlines have also recommended easing of the entry barrier by bringing down the proposed bank guarantee of Rs 50 lakh.

Choubey said the RCS would be finalised and "put into operation" by the middle of next month. He is expecting at least 50 airstrips and airports under states to be revived through the scheme. According to him, today 65% of the air traffic growth came from 12 routes.

"Our country is far bigger than 12 routes. Therefore, after the successful implementation of the RCS our growth rate will be much higher than (the current) 22%. There is a tremendous business opportunity (on regional routes)," he said.

The draft RCS proposes concessions of 2% on central excise and value added tax (VAT) and service tax at 1/10th the rate while the state will provide free security and fire services and utilities at concessional rates. The ministry has asked the states to lower VAT on ATF to 1%.

Airlines have asked for reduced tax on ATF not just at the airports under RCS but also at others airports from where the RCS flights would initiate from.

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