What’s clipping our wings?

Source : Bloomberg News

The Indian civil aviation industry, with a size of $16 billion, is among the top 10 globally. It has grown at a CAGR of 17%, which, if sustained, could make it the largest aviation market by 2030. Entry of Low Cost Carriers and thrust on development of modern airports has expanded the market from business class and corporate to the middle class, who have the potential to become the largest and most lucrative customer segment.

Figure 1: Indian commercial aviation sector

The Make-In-India program is designed to facilitate investment, foster innovation and build manufacturing infrastructure in a number of key segments that are instrumental in India’s growth and progress. In the aviation sector, the government has announced a number of key policy initiatives, such as 100% FDI in greenfield airport projects and 49% FDI in domestic passenger airlines, along with budgetary support in terms of investment and exemptions. However, there exist a lot of regulatory and taxation hurdles for airline companies in India, and measures need to be taken to support the development of the aviation sector in India.

Essential Air Services Fund (EASF): Connectivity between Tier-2 and Tier-3 cities is low due to air carriers refusing to operate flights on those routes as they perceive them to be unprofitable, due to low volumes. A proposal exists, for airlines to contribute a percentage of each ticket sold to a common fund which can be used to cross-subsidise air travel on unprofitable routes. This is similar to a fund in the telecom sector where operators contribute 5% of their gross revenues to a universal service obligation fund, which is used to provide telephone connectivity in rural areas. A similar policy in aviation would enable increase in connectivity on less busy routes.

Modification of the 5/20 rule: Currently, Indian airlines are required to have a minimum fleet of 20 aircraft and 5 years of operational experience to start international services. This serves as a deterrent for new entrants, who want to operate flights in the more profitable international segments. Instead, the policy can be modified to allow airlines to accumulate flying credits by deploying capacity on domestic routes, with additional credits for providing connectivity on routes deemed unprofitable. Also, the minimum operational experience requirement can be revised to one year. This will help improve domestic connectivity and attract more entrants in the aviation space.

Fuel taxation: High tax rates of 3-30% on Aviation Turbine Fuel (ATF) have made ATF in India 60% costlier than that available in ASEAN countries. Along with state and central taxes on ATF, there exist service taxes on air tickets and high airport charges, which are throttling Indian airline carriers’ competitiveness and adding to their debt burden. A comprehensive look at the taxation policies is required, with reduction in extra taxes.

MRO taxation: Airlines in India spend 13-15% of their revenues on Maintenance, Repair and Overhaul (MRO), making it the second largest cost component for airlines. Myopic policies regarding indirect taxes such as VAT and Service tax, along with laborious customs procedures regarding import of spare parts and consumables, has led to most airlines flying empty aircrafts to MRO facilities in foreign countries for servicing. Merely 5-10% of MRO work for domestic carriers is carried out in India. This represents a huge lost opportunity in terms of revenue and jobs. A task force needs to be set up to review the policies and modify the taxation regime to develop the domestic MRO industry.

Infrastructure development: There has been a thrust on development of infrastructure, particularly new airports, but there needs to be focus on developing low-frill airports under Public-Private-Partnership schemes. Also, a key impediment to growth of airline capacity in India is lack of availability of hangar space at key international airports, which needs to be addressed.

While the initiatives under the Make-In-India program serve as a good starting point, a comprehensive overhaul of aviation policy is required to achieve the growth targets and make Indian aviation competitive from a global standpoint.

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Arundhati Hazra is a second year student at IIM Ahmedabad. She graduated from NITK Surathkal with a B.Tech in Electrical and Electronics Engineering, and worked for three years, in ST-Ericsson and AMD, before coming to IIM Ahmedabad. She enjoys reading, writing and quizzing. She interned with McKinsey and Company during summers.

No Child’s Play

Sports Management in India

From building morale and inculcating values of sportsmanship to being used as a tool to build diplomatic relations, sports have been central to human progress. To say that India is fascinated by sports or that cricket is a religion would be a gross understatement. However, despite the enthusiasm and the multitude of talent, the state of Indian sports today leaves a lot to be desired.

The Need

There is no dearth of talent in India. What India lacks is the system to unearth these talents and provide them with a platform to flourish. With an increasing number of global sporting events (IPL, Commonwealth Games, Indian Grand Prix, World Chess Championship) coming to India, the need for structured sports management and its marketing is being felt more than ever before. A National Skill Development Council (NSDC) Skills-Gap study in the sports sector found that by the year 2022, India would need the following –

Challenges

This represents significant challenges and opportunities in the sports sector in India.

To begin with, we live in a society that encourages academic excellence, relegating sports to a lower priority. Despite its potential, sports is largely seen as a recreational activity rather than a profession. The ecosystem that surrounds sports remains largely neglected, with the focus being only on the players. Moreover, women sports continue to be ignored in India.

India’s preoccupation with cricket represents another challenge, as it has deterred the development of other sports. World champions in sports such as snooker, squash and chess go unrecognized. Indigenous games such as kabbadi and kho-kho have taken a backseat. Few opportunities are available for training, competitions and outreach for these games.

As far as resources are concerned, there are glaring gaps in almost every field of sports management in India. There is a conspicuous absence of the most basic infrastructure. According to the Comprehensive Sports Policy drafted by the Ministry of Sports and Youth Affairs in 2007: of the 770 million people below the age of 35 in India, only 50 million have access to organized games and sports facilities. The sports sector is largely under the purview of the public sector. Although private sector’s contribution has been growing, it is still small and largely unorganized. A combination of slow bureaucratic approach, organizational delays and poor maintenance has led to sub-optimal results with regards to new initiatives. Other concerns include the limited availability of qualified teachers and coaches, few opportunities for sports research, and the low level of coordination between various government bodies which are responsible for promoting sports.

Opportunities

The ever-increasing opportunities in sports sector present a platform for aspiring sportsmen and individuals associated with sports and allied services. The sports sector is becoming an increasingly important strategic business unit for many corporate houses in India. There are several untapped avenues that can be used to promote interest in sports, and generate employment in the process.

1. Global mega events in India

Examples: Indian Premier League, World Cups, Asian Games, Commonwealth Games, Indian Grand Prix

Major responsibilities at these events are often outsourced due to the lack of competent local talent. Although they happen in India, a major part of the organizing team comes from abroad. In spite of the outsourcing, local employment generation does take place. Commonwealth Games 2010 resulted in an overall economic impact of US $4,940 million on India’s GDP during a period of four years and expectedly created employment opportunities close to 24.7 lakh. The Indian Grand Prix saw an inflow of US $100 million into the Indian economy through the travel and hospitality industries. The Indian Premier League is directly and indirectly responsible for the employment of more than 15,000 people.

2. Domestic Competitions

Examples: I-League, National A, Ranji Trophy, Franchisee tournaments

Professional domestic competitions provide a platform for talent to be recognized. They help build infrastructure at the grassroots level, and enable non-sportspersons to gain exposure in the professional organization of sporting events.

3. Facilitating global sporting events

Examples: EPL, Tennis Grand Slams, NBA, Tour de France

A substantial segment of the Indian audience is interested in several sporting events that happen across the globe. Local clubs and sports centers could utilize these events to increase awareness among the masses. It would also help them in developing a consumer base and a fan following that is essential for their survival. Support for broadcast and commentary of these events would help these sports in India.

Changing Scenario

Sports is slowly evolving both on and off the field and is now gathering momentum, inching towards becoming an integral part of the common man’s life. The funding for sports in India has increased from INR 270 million in the Sixth Five Year Plan (1980 – 1985) to more than INR 46 billion in the Eleventh Five Year Plan (2007 – 2012).

The government has launched several schemes under the Tenth and Eleventh Five Year Plans that focus on uplifting the sports infrastructure, training and coaching facilities at the basic grass-root level as well as developing world class facilities.

Various institutes offering education in professional sports management have come up in the last decade. Sports is now an important strategic business unit in corporate, with many of them actively participating in the promotion of sports. India is now a regular host to some of the major global sporting events including the Chennai Open (ATP World Tour), Indian Open Super Series (Badminton), Indian Grand Prix (Formula 1) and various sports leagues (cricket, football, hockey, badminton, motor sports, golf).

Conclusion

A systematic and structured development of an environment conducive to the flourishing of sports is imperative for the long-term well-being of the country. There is immense potential for employment by developing professional sports management. There is also immense potential for revenues, both for the government and the private sector. Beyond contributing to India’s GDP, developing sports will also positively influence society by creating healthy, fit and productive citizens.

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Sumit is a PGP1 student at IIM Ahmedabad and a member of Consult Club. He graduated from IIT Madras in 2013 with a Dual Degree (BTech + MTech) in Mechanical Engineering. He is interested in technology, business development and sports management.