 "There are some questions on execution of Make in India on the ground: Doug Gates")
Even as the government is struggling to come out with a civil aviation policy for more than a year, the aviation sector is awaiting concrete steps to address the issues plaguing the sector. Doug Gates, global head of industrial markets, aerospace and defence, KPMG, tells Somesh Jha the government has to take progressive steps to give a boost to the sector. Edited excerpts:
What does Prime Minister Narendra Modi's 'Make in India' campaign mean for the aviation and defence manufacturing sectors?
I like the focus India is placing on manufacturing as a whole. It has a tremendous opportunity to employ large sections of the Indian workforce. There are some questions on execution on the ground and what that ultimately means for the aerospace and defence sector. But I do like the emphasis on it and it is the right step for a country like India.
Talking of execution, industry complains there hasn't been any movement in the aviation sector. What does India lack?
'Make in India' is a philosophy and as a philosophy, it's a good one. Talking about execution, Indian aviation suffers from high costs, high taxation and a non-supportive policy regime. India has a huge growth opportunity, provided the right policies are brought in. The cost of flying has to be reduced drastically. Regional connectivity in India has to be improved by way of low cost solutions for airport construction, operations, air navigation, safety and security. India will have to restructure its tax policies, and open up foreign direct investment (FDI) sector in aviation and defence. These are the discrete steps that will enable the philosophy and need to be addressed in a serious way. I would say those steps haven't been taken. I am told the Indian government is drafting a civil aviation policy which is expected to be progressive and growth-oriented.
How would you rate the government's performance in the aviation and defence sectors so far?
I would refrain from giving scores. It's a bit early perhaps. I think Prime Minister Modi has put the right agenda in place and he is trying to move a lot of things. His trips to the US, the EU, Japan, West Asia, etc., and engagement with global investors have created the right buzz. The proof will be in execution.
Do you think the government didn't focus much on the aviation sector?
In the past, perhaps yes. It is perhaps due to a completely wrong notion of aviation as an elite mode of transportation. In leading countries, it is treated as a commodity that helps save time compared to other modes of transport.
Do you think the '5/20 rule' is hindering growth?
As long as an Indian carrier is providing safe transportation and meeting India's safety regulations, why not let it fly abroad and let the market drive it? The '5/20 rule' is an obsolete one. However, removing it will not solve all the problems, as a more critical issue is infrastructure for aviation within India, which will ultimately drive traffic.
Recently, the government suggested capping of airfares as an option to control prices. Do you think the government should interfere?
Most Indian carriers are struggling to make profits. If passengers don't fly, airlines are forced to drop fares. Airlines then, have to balance it during periods of high demand and fares will be high - as in the case of hotels and car rentals. These are best left to market forces. In fact, instead of capping fares, you need to provide incentives, subsidies and lower taxes on certain routes in case you want airfares to stay within a limit from a regional connectivity perspective.
What does Prime Minister Narendra Modi's 'Make in India' campaign mean for the aviation and defence manufacturing sectors?
I like the focus India is placing on manufacturing as a whole. It has a tremendous opportunity to employ large sections of the Indian workforce. There are some questions on execution on the ground and what that ultimately means for the aerospace and defence sector. But I do like the emphasis on it and it is the right step for a country like India.
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At the same time, defence procurement in India needs a massive overhaul. Look at case of multi-role fighter aircraft, which was in pursuit for the last eight years. Three years after selecting the winning bidder, the programme stands cancelled. Why will I, as an investor, spend millions of dollars in pursuit of a deal for such a long period if it doesn't materialise? If you bid over a long extended period and the contract is not executed, companies won't believe you are serious. So, it's this frustration that causes the damage. I have personally worked with some leading players who say they have shifted their focus to other countries.
Talking of execution, industry complains there hasn't been any movement in the aviation sector. What does India lack?
'Make in India' is a philosophy and as a philosophy, it's a good one. Talking about execution, Indian aviation suffers from high costs, high taxation and a non-supportive policy regime. India has a huge growth opportunity, provided the right policies are brought in. The cost of flying has to be reduced drastically. Regional connectivity in India has to be improved by way of low cost solutions for airport construction, operations, air navigation, safety and security. India will have to restructure its tax policies, and open up foreign direct investment (FDI) sector in aviation and defence. These are the discrete steps that will enable the philosophy and need to be addressed in a serious way. I would say those steps haven't been taken. I am told the Indian government is drafting a civil aviation policy which is expected to be progressive and growth-oriented.
How would you rate the government's performance in the aviation and defence sectors so far?
I would refrain from giving scores. It's a bit early perhaps. I think Prime Minister Modi has put the right agenda in place and he is trying to move a lot of things. His trips to the US, the EU, Japan, West Asia, etc., and engagement with global investors have created the right buzz. The proof will be in execution.
Do you think the government didn't focus much on the aviation sector?
In the past, perhaps yes. It is perhaps due to a completely wrong notion of aviation as an elite mode of transportation. In leading countries, it is treated as a commodity that helps save time compared to other modes of transport.
Do you think the '5/20 rule' is hindering growth?
As long as an Indian carrier is providing safe transportation and meeting India's safety regulations, why not let it fly abroad and let the market drive it? The '5/20 rule' is an obsolete one. However, removing it will not solve all the problems, as a more critical issue is infrastructure for aviation within India, which will ultimately drive traffic.
Recently, the government suggested capping of airfares as an option to control prices. Do you think the government should interfere?
Most Indian carriers are struggling to make profits. If passengers don't fly, airlines are forced to drop fares. Airlines then, have to balance it during periods of high demand and fares will be high - as in the case of hotels and car rentals. These are best left to market forces. In fact, instead of capping fares, you need to provide incentives, subsidies and lower taxes on certain routes in case you want airfares to stay within a limit from a regional connectivity perspective.