Economic Development - 2 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Startups in Emerging Technology

Context

Recently, the Government unveiled an Action Plan for Startup India which laid the foundation of Government support, schemes and incentives envisaged to create a vibrant startup ecosystem in the country.

What are Details of Programs to Support Startups?

• Startup India Action Plan:

  • The Action Plan comprises of 19 action items spanning across areas such as “Simplification and handholding”, “Funding support and incentives” and “Industry-academia partnership and incubation”.
• Fund of Funds for Startups (FFS) Scheme:
  • The Government has established FFS with a corpus of Rs. 10,000 crore, to meet the funding needs of startups.
  • Department for Promotion of Industry and Internal Trade (DPIIT) is the monitoring agency and Small Industries Development Bank of India (SIDBI) is the operating agency for FFS.
  • It has not only made capital available for startups at early stage, seed stage and growth stage but also played a catalytic role in facilitating raising of domestic capital, reducing dependence on foreign capital and encouraging home grown and new venture capital funds.
• Credit Guarantee Scheme for Startups (CGSS):
  • The Government has established the CGSS for providing credit guarantees to loans extended to DPIIT recognized startups by Scheduled Commercial Banks, Non-Banking Financial Companies (NBFCs) and Venture Debt Funds (VDFs) under SEBI registered Alternative Investment Funds.
• Ease of Procurement:
  • Government e-Marketplace (GeM) Startup Runway has been developed which is a dedicated corner for startups to sell products and services directly to the Government.
• Support for Intellectual Property Protection:
  • The Government launched Start-ups Intellectual Property Protection (SIPP) which facilitates the startups to file applications for patents, designs and trademarks through registered facilitators in appropriate IP offices by paying only the statutory fees.
  • The Government bears the entire fees of the facilitators for any number of patents, trademarks or designs, and startups only bear the cost of the statutory fees payable.
  • Startups are provided with an 80% rebate in filing of patents and 50% rebate in filing of trademark vis-a-vis other companies.
• Self-Certification under Labour and Environmental laws:
  • Startups are allowed to self-certify their compliance under 9 Labour and 3 Environment laws for a period of 3 to 5 years from the date of incorporation.
• Income Tax Exemption for 3 years:
  • Startups incorporated on or after 1st April 2016 can apply for income tax exemption.
  • The recognized startups that are granted an Inter-Ministerial Board Certificate are exempted from income-tax for a period of 3 consecutive years out of 10 years since incorporation.
• International Market Access to Indian Startups:
  • This has been done through international Government to Government partnerships, participation in international forums and hosting of global events.
  • Startup India has launched bridges with over 15 countries that provides a soft-landing platform for startups from the partner nations and aid in promoting cross collaboration.
• Faster Exit for Startups:
  • The Government has notified Startups as ‘fast track firms’ enabling them to wind up operations within 90 days vis-a-vis 180 days for other companies.
• Startup India Hub:
  • The Government launched a Startup India Online Hub in 2017 which is one of its kind online platforms for all stakeholders of the entrepreneurial ecosystem in India to discover, connect and engage with each other.
• National Startup Advisory Council:
  • The Government in January 2020 notified the constitution of the National Startup Advisory Council to advise the Government on measures needed to build a strong ecosystem for nurturing innovation and startups in the country to drive sustainable economic growth and generate large scale employment opportunities.
  • Besides the ex-officio members, the council has a number of non-official members, representing various stakeholders from the startup ecosystem.
• Startup India Seed Fund Scheme (SISFS):
  • The Scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization. Rs. 945 crore has been sanctioned under the SISFS Scheme for a period of 4 years starting from 2021-22.
• National Startup Awards (NSA):
  • National Startup Awards is an initiative to recognize and reward outstanding startups and ecosystem enablers that are building innovative products or solutions and scalable enterprises, with high potential of employment generation or wealth creation, demonstrating measurable social impact.
• States’ Startup Ranking Framework (SRF):
  • States’ Startup Ranking Framework is a unique initiative to harness the strength of competitive federalism and create a flourishing startup ecosystem in the country.
  • The major objectives of the ranking exercise are facilitating states to identify, learn and replace good practices, highlighting the policy intervention by states for promoting startup ecosystems and fostering competitiveness among states.
• Startup India Innovation Week:
  • The Government organises Startup India Innovation week around the National Startup Day i.e., 16th January.
• TIDE 2.0 Scheme:
  • Technology Incubation and Development of Entrepreneurs (TIDE 2.0) Scheme was initiated by Ministry of Electronics and Information Technology (MeitY) in the year 2019 to promote tech entrepreneurship through financial and technical support to incubators engaged in supporting ICT startups using emerging technologies such as IoT, AI, Block-chain, Robotics etc.
  • The Scheme is being implemented through 51 incubators through a three-tiered structure with an overarching objective to promote incubation activities at institutes of higher learning and premier R&D organisations.
• Domain specific Centres of Excellence (CoEs):
  • MeitY has operationalised 26 CoEs in diverse areas of national interest for driving self-sufficiency and creating capabilities to capture new and emerging technology areas.
  • These domain specific CoEs act as enablers and aid in making India an innovation hub in emerging through democratisation of innovation and realisation of prototypes.
• SAMRIDH Scheme:
  • MeitY has launched the ‘Start-up Accelerator Programme of MeitY for Product Innovation, Development and Growth (SAMRIDH)’ with an aim to support existing and upcoming Accelerators to further select and accelerate potential software product-based startups to scale.
• Next Generation Incubation Scheme (NGIS):
  • NGIS has been approved to support the software product ecosystem and to address a significant portion of National Policy on Software Product (NPSP) 2019.
• Biotechnology Industry Research Assistance Council (BIRAC):
  • An industry-academia interface agency of Department of Biotechnology, Ministry of Science & Technology is supporting biotech startups in all biotech sectors including clean energy and emerging technologies.
  • Project based funding is provided to startups and companies for product/technology development under its key Schemes including Biotech Ignition Grant (BIG), Small Business Innovation Research Initiative (SBIRI) and Biotechnology Industry Partnership Programme (BIPP).
  • Incubation support to the startups and companies is also provided through Bioincubators Nurturing Entrepreneurship for Scaling Technologies (BioNEST) Scheme.

IBC Reform: Distribution of Proceeds

Context

• The Ministry of Corporate Affairs has released a discussion paper that proposes several changes to the Insolvency & Bankruptcy Code (IBC), 2016.

What is the Insolvency and Bankruptcy Code (IBC)? 

• About
  • In 2016, at a time when India’s Non-Performing Assets and debt defaults were piling up, the Insolvency and Bankruptcy Code (IBC) code was introduced through an act of the Parliament.
  • It was introduced to overhaul the corporate distress resolution regime in India and consolidate previously available laws to create a comprehensive time-bound mechanism.
    • Insolvency resolution in India took 4.3 years on an average.
    • In comparison, countries such as UK and USA took 1 year and 1.5 years, respectively.
  • The Code aims to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.
• Timeframe
  • Companies have to complete the entire insolvency exercise within 180 days under the IBC. 
  • The deadline may be extended if the creditors do not raise objections on the extension.
  • For smaller companies including startups with an annual turnover of Rs 1 crore, the whole exercise of insolvency must be completed within 90 days. 
• Regulation of the IBC Proceedings
  • Insolvency and Bankruptcy Board of India (IBBI) has been appointed as a regulator and it can oversee these proceedings. 
  • IBBI has 10 members; from Finance Ministry, Law Ministry and the Reserve Bank of India. 

News Summary: Insolvency and Bankruptcy Code and the question of distribution of proceeds

• The Ministry of Corporate Affairs has released a discussion paper that proposes several changes to the Insolvency & Bankruptcy Code (IBC), 2016. 
• One of the proposals is about the distribution of proceeds to different classes of creditors.

What are the existing provisions of IBC dealing with the distribution of proceeds?

• Under the IBC, a resolution applicant submits a plan to deal with the outstanding debts of a company by bringing proceeds under the plan. 
• A committee of financial creditors votes on the financial viability & feasibility of the resolution plan. 
• The quantum & manner of distribution under the Code has long been an issue of discontent for unsecured & junior creditors.

How are proceeds distributed among creditors under the IBC?

• Categorisation of creditors
  • A company may have various creditors — public sector banks, private lenders, non-banking financial companies, trade creditors etc.
  • The Code puts these creditors into different categories based on the nature of debt. 
    • Banks, bond issuers, and lenders are classified as financial creditors. 
    • Trade creditors & vendors are classified as operational creditors. 
    • Financial creditors are further categorised as secured and unsecured creditors, based on the security furnished by the borrower company.
• Priority in which proceeds will be distributed
  • The Code prescribes an order of priority in which proceeds will be distributed to the creditors based on the liquidation value.
    • E.g., secured financial creditors rank the highest in the order of priority.
  • The creditors receive proceeds (even if in surplus over the liquidation value) under the resolution plan in order of the mentioned priority.
    • As a result, proceeds may be extinguished at the level of financial creditors itself, leaving almost nothing for other creditors in the waterfall mechanism.

What does the discussion paper propose?

• The discussion paper acknowledges concerns among creditors regarding inequitable distribution. 
• It says there is a need to devise an objective formula so that the distribution is fair and equitable for all creditors.

What is the impact of this proposal?

• Inter-creditor distribution gets impacted
  • As of now, a secured financial creditor is statutorily entitled to have his claim satisfied in priority to an unsecured financial creditor. 
  • The proposal seeks to dilute that statutory entitlement.
• Partially undo what the Supreme Court held in the Essar Steel case
  • In this case, the Supreme Court upheld the idea of paying secured creditors amounts based on their value of the security in preference to other creditors.
  • Hence, the current proposal seeks to partially undo this judgement.
• Resolution vs. liquidation
  • The Code was seen as promoting resolution over liquidation. 
  • However, in the proposed scenario, it will be more beneficial for the secured creditors to push the company towards liquidation.
  • This will enable these creditors to realise the full value of their security rather than sharing it with other junior creditors or creditors having inferior security interests under a resolution process.

India Aims to Become Top Global Aviation Market by 2030

Context

• GoFirst Airlines has filed for bankruptcy, which could have ripples across the domestic aviation sector.
• The unprecedented distress call by the airline raises concerns about the health of the Indian aviation industry already reeling from pandemic losses.

Introduction to the Aviation Industry

• India is the world’s fastest-growing aviation market, with passenger numbers near quadrupling in over a decade.
• The country’s aviation capabilities have expanded massively over the past few decades, with a period of rapid growth in aircraft sales, both domestically and internationally. The country saw many airports coming up between 1990 to 2022, and more are there in the pipeline.
• In addition to India’s domestic demand, the market is also driven by rising Indian consumption of international air travel.
• With increased air connectivity across multiple countries, the demand for international air travel is also growing faster than domestic air travel.

Trends in the Aviation Industry

• India has Asia’s largest aviation industry. In recent decades, civil aviation has risen quickly. Growth reasons are not limited to:
  • Aviation infrastructure development
  • Deregulation of rates and liberalization of air services
  • Code-share agreements
  • Aggressive pricing
  • Low-cost airlines (LCCs)
• The domestic sector has thrived due to rising per capita income and increasing penetration of air traveling facilities to ordinary people, and rapid expansion of destinations, airports, and operational airports.

Air Traffic

• India is the world’s third-largest air passenger market, after China and the United States.
• In FY 22, India’s passenger traffic stood at nearly 189 million, out of which domestic passenger traffic accounted for over 166 million, a 58% YOY rise from 105 million in FY 21.
• On the other hand, international passenger traffic saw a 118% YoY rise to 22 million from 10 million in FY 21.
• The Indian aviation sector is expected to touch 400 million passengers annually in 7-10 years.

Airplane Fleet

• Despite the pandemic, domestic airlines have continued to add new aircraft to their fleets.
• The civil aviation ministry conjectures that the overall fleet size will almost double to 1,200 in 5 years from the current size of over 700 planes.

Number of Airports

• To be able to cater to the increasing air traffic, the government has been taking measures to increase the number of its operational airports.
• The government has envisaged increasing the number of operational airports to 220 by 2030, from the current size of 129.

Airport Infrastructure

• The Indian civil aviation sector has been witnessing the increasing use of airports on domestic and international routes, fewer delays due to bad weather conditions, and better planning of ramp-up flights at airports during peak hours.
• The International Civil Aviation Organization forecasts demand for 730 new airports by 2030, catering to the expected 6.5 billion airline passenger growth.

Freight Traffic

• India is the sixth-largest air freight market globally with over 3.33 million metric tons of loading as of 2021.
• The share of India in the global air freight market has increased from around 2% in 2000 to more than 7% as of 2021, with growth rates in the range of 3–7% per annum during recent years.
• India has developed as a pioneer in cargo logistics by building substantial port infrastructure, a well-performing national government (financing) program, and working closely with private sector industry groups.

In a nutshell,

• The Indian aircraft industry is growing at 8-10% per annum.
• In terms of value, aviation projects under construction planned a natural growth will account for around 6.5 billion dollars by 2030.
• The growth was led by Indian carriers like SpiceJet, Air Asia, and Jet Airways, which have expanded their routes to destinations in India. It also includes the national capital, New Delhi and New York, and other Asian cities like Singapore, Bangkok Suvarnabhumi, etc.
• The CAPA-Centre for Aviation projects India to handle over 1.3 billion passengers annually in the next 20 years. There are currently 148 airports in the country and it is the third-largest domestic market in the world in terms of seat capacity. As of March 2023, IndiGo remained the domestic market leader with 56.8% of the market share, followed by Vistara (8.9%) and Air India (8.8%).

Challenges Facing the Aviation Industry

• Despite being touted as the ‘fastest growing aviation sector’ in the world, airlines in the country have struggled to survive in the highly competitive and unforgiving aviation industry.

Aviation Turbine Fuel (ATF) Prices

• ATF accounts for almost 45% of the operational cost of an Indian airline.

• ATF prices rose over 50% in 2022. As per Boeing, fuel costs for Indian airlines are 90% higher compared to their global peers. Additionally, ATF fuel is subjected to VAT which can range from anywhere between 15-30%, depending on the states’ taxation rules. The civil aviation ministry plans to bring down this tax to 1-4%.
• Additionally, the ATF pricing is not transparent enough. Currently, it is fixed based on the International Import Parity Prices, which does not capture the true cost of producing ATF.

Other Operating Expenses

• Almost 35-50% of Indian airlines’ operating expenses are dominated by US dollars. This means depreciation in the rupee adversely impacts an airline’s bottom-line growth.
• Indian airlines, furthermore, face issues in passing on these costs to the passengers as they are highly price-sensitive, therefore earning low yields on air tickets.
• Another large component of an airline’s expense is the salaries that are paid to pilots.

Elevated Debt Levels and Losses

• Due to a temporary halt in all airline operations at the peak of the pandemic and the subsequent rise in ATF pricing, the finances of Indian airline companies have been in disarray.
• Losses to the tune of Rs. 23,000 crores were recorded in 2021. Investment Information and Credit Rating Agency (ICRA) projects these losses to be in the range of Rs 15,000-17,000 crore this fiscal, despite the opening up of the economy.
• IndiGo and SpiceJet posted losses of Rs 1,064 crores and Rs 789 crores, respectively, in Q1FY23.
• Besides, the aviation industry is reeling from mounting debt levels. These are expected to reach around Rs 1 lakh crore in FY 2023. The matters have been made worse as airlines continue to be saddled with immense losses, which makes getting loans a pricier exercise.

Stiff Competition

• There are over 15 airlines operational in India, with a heady mix of low-cost, charter, and cargo airlines.
• Indeed, the airfares have been slashed for the routes where these airlines have launched their flights.

Financial Trouble

• While travel restrictions during the pandemic badly hit the coffers of all carriers, their financials were in the red earlier as well.
• While India’s airlines cumulatively suffered huge losses (Rs. 15,000 crore) in the financial year 2020-2021 owing to the pandemic, losses are not a post-Covid phenomenon.
• In 2019-20, IndiGo was the only airline to make a profit, while all other players posted losses led by then state-run Air India at Rs. 4,600 crore.
• Financial trouble has led to the folding of major airlines in the past few decades — seventeen airlines, domestic and regional, have exited the market.

Indian aviation policy

• Some Indian States impose provincial taxes of as much as 30% on jet fuel.
• Indian aviation policy has also posed barriers to entry and growth while also not affecting players uniformly.
• From 2004 to 2016, new airlines in the country had to be in operation for at least five years and have a fleet of at least 20 aircraft to be able to fly internationally, which stabilizes the operations and viability of carriers.
• This changed with the National Civil Aviation Policy (NCAP) in 2016, which removed the five-year domestic experience rule but kept in place the 20 aircraft fleet requirement — mandating domestic airlines to have at least 20 aircraft (or 20% of its entire fleet size whichever is higher) for domestic operations.
• While newer entrants to the industry, like Vistara and AirAsia India lobbied the government to remove the 5/20 rule, legacy carriers who had to meet the earlier requirements to go international opposed the change as being bad for competition.

Expensive Lease Rents

• Most Indian airlines do not own entire fleets as their financials do not allow them to shell out huge one-time payments to buy planes but lease them from companies based out of India instead. About 80% of India’s total commercial fleet is leased, according to PwC.
• However, leasing ends up adding high costs to operations as these leases of about six months each are denominated in U.S. dollars.
• Airlines have to pay annual lease rents of about ₹10,000 crore to lessors, making up nearly 15% of the revenues of Indian Airlines.
• The costs of these leases go up further when the Indian rupee depreciates during short and long-term global financial developments, for instance, an oil price shock, which simultaneously increases the cost of ATF, compounding the carrier’s expenses.
• Till the government’s plan to get leasing companies to set up shop in India and make it a leasing hub takes off fully, the expensive lease rents for airlines and repayment feuds with lessors are here to stay.

Airport Fees

• Airlines also have to bear costs in terms of airport fees for the use of airport facilities including aircraft landing, freight, and other charges related to the use of airport infrastructure such as runways and passenger terminals.
• Internationally, airlines pass on the bulk of these charges to passengers, however, carriers in India must remain competitive have to offer lower ticket fares to increase reach.
• For State-run airports, these charges are regulated by the Airports Economic Regulatory Authority (AERA) but the recent privatisation of airport operations, has raised concerns about further fee hikes.
• There are also high costs associated with the training of airline crew.

Others

• Other factors that could impact the companies in the airlines industry include regulatory changes, RBI approvals (for foreign investments), rupee appreciation/depreciation against US dollars, delay in setting up of airport infrastructure facilities and aircraft bans and other related issues (like the case Boeing 727).

Higher Household Income

• As the GDP of India grew 8.7% in FY 2022 after a contraction of 6.6% during the previous fiscal year, there has been more business travel by professionals and greater leisure travel by individuals due to increasing income groups which drive the consumption pattern in India and primarily based out of urban areas, contributing more to the aviation industry.

Entry of Low-cost Carriers (LCC)

• This is the model which has made air travel affordable for the common man and has been operating in the domestic market since 2004. The market suggests that this model is driving domestic traffic and thus, has shown strong operational performance over the years.

Increased FDI Inflows

• The inflow of FDI contributes to the better development of the infrastructure of the aviation industry.
  • Up to 100% FDI in civil aviation in India is permitted in Non-scheduled air transport services under the automatic route
  • Up to 100% FDI is permitted in helicopter services and seaplanes under the automatic route
  • Up to 100% FDI is permitted in MRO for maintenance and repair organizations; flying training institutes; and technical training institutes under the automatic route
  • Up to 100% FDI in the aviation sector is permitted in Ground Handling Services subject to sectoral regulations & security clearance under the automatic route

Increased Tourist Inflows

• With the increase in the tourism industry, air travel growth has also increased over the years. For Foreign Tourist Arrivals (FTA), air travel is the most chosen mode of transportation.
• In 2021, out of 1.52 million FTAs in India, 87.5% of individuals entered via air routes, 11.8% via land routes, and 0.7% via sea routes.
• Around 53.6% of FTAs arrived in India through the Delhi and Mumbai airports. In 2021, tourism's foreign exchange earnings (FEE) were US$ 8.7 billion compared to US$ 6.958 billion in 2020, registering a growth of 26.4%.

Development of Modern Airports with New Technologies

• Modern airports come up with developed infrastructure in terms of speed, capacity, sustainability goals, etc, and hence contribute more to the aviation industry. One of the examples is the newly opened greenfield international airport at Mopa in the state of Goa.
• It has been developed with an investment of US$ 348 million, the first phase of Mopa International Airport will handle around 4.4 million passengers per annum which can be extended to a saturation capacity of 33 million passengers per annum.
• This airport has been developed with several sustainable infrastructure plans, including a solar power plant, green buildings, LED lights on the runway, rainwater harvesting, and a modern sewage treatment plant with recycling facilities.

Supporting Government Policies

• Government interventions play a major role in the development of the aviation industry in India.
• One of the schemes launched by the government in support of the growth of aviation was the UDAN (Ude Desh Ka Aam Nagrik) scheme which was released in June 2016 with the motive of offering half of the flights at subsidized fares and is expected to be in process for a period of 10 years (till 2026).

The Indian Government is proactively supporting the aviation sector by providing a stable policy environment and incentivising competition-led growth.

Northeast India

• Over 30 airport development projects are under progress across various regions in Northeast India. AAI plans to develop over 20 airports in Tier-II and Tier-III cities in the next 5 years. AAI plans to develop Guwahati as an inter-regional hub and Agartala, Imphal and Dibrugarh as intra-regional hubs.

Airport Infrastructure

• The Indian Government is planning to invest US$ 1.83 billion for the development of airport infrastructure along with aviation navigation services by 2026.
• With the opening of the airport sector to private participation, six airports across major cities are being developed under PPP. Currently, 60% of airport traffic is handled under PPP, while the remaining 40% is managed by AAI. Increased traffic rights under bilateral agreements with foreign countries. India signed its 1st open skies agreement with Greece.

National Civil Aviation Policy, 2016

• The policy covers 22 areas of the civil aviation sector. Regional Connectivity Scheme (RCS) has been launched under the policy. Airlines can commence international operations and will have to deploy 20 aircraft or 20% of their total capacity (whichever is higher) for domestic operations.

Encouragement to FDI

• The Government has allowed 100% FDI under automatic routes for greenfield projects, whereas 74% FDI is allowed under automatic routes for brownfield projects. 100% FDI is allowed under automatic routes in scheduled air transport service, regional air transport service and domestic scheduled passenger airlines. FDI over 49% would require Government approval. Approval of 49% FDI in aviation for foreign carriers. FDI inflows in India’s air transport sector (including air freight) reached US$ 3.54 billion between April 2000-March 2022.

'Revival of unserved and under-served airports' scheme

• The Government has approved the 'Revival of unserved and under-served airports' scheme for the revival and development of 100 unserved and under-served airports, helipads, and water aerodromes by 2024.

KrishiUdan 2.0

• KrishiUdan 2.0 is a scheme that focuses on transporting perishable food products from hilly areas, north-eastern states, tribal areas, and other areas. 58 airports have been identified under this scheme to incentivize movement of air cargo.
• The Airports Authority of India (AAI) and other airport developers have taken up the development of new and existing airports with a projected capital expenditure of approximately INR 98,000 crore in the next five years.

Regional Connectivity Scheme (UDAN).

• The Union Budget 2023-24 allocated an amount of INR 1,244.07 crore for Regional Connectivity Scheme (UDAN).

Recommendations that can Revitalize the Aviation Sector

Tightening the PPP (Public Private Partnership) procurement and concession framework

• India has shown that PPPs in airports can work. We have successfully procured private sector talent and expertise in developing, operating and managing Greenfield and Brownfield airport assets under long-term concession contracts.
• Our hub airports rank among the best in the world today despite historical concerns on gold-plating, persistent refrain on airport tariffs and over-bearing regulation.
• The learning curve has been long but sharp and useful for all stakeholders.
• With more private airport concessions on the anvil, there are three things that the government should look at prioritising as part of its reform agenda to enhance competition, attract more foreign investments and deliver better commercial and economic outcomes.

(i) Implement the recommendations of the Kelkar Committee report on revitalizing PPPs (2015), of which two key elements stand out

(a) defining triggers and commercial principles for renegotiation of contracts – a necessity in long-tenure concessions with volatile and uncertain market variables

(b) disallowing public-sector entities from participating in PPP projects – a good and effective approach to not vitiate the fundamental rationale of private sector procurement

(ii) Providing tariff certainty – an essential tenet in any private sector contract to give comfort to both investors and users.

(iii) Ensure tight procurement timelines – process from tender invitation to award of contracts not exceeding 9 months.

• In addition, making airport connectivity or other mobility solutions an integral part of the concession and project agreements.
• They also need to be co-terminus with airport commencement timelines, with clearly defined obligations and penalty provisions for delays or defaults by contracting parties – the economic costs of non-compliance can be significantly minimized or avoided if properly structured.

Redefining our regulatory philosophy

• The airport economic regulatory philosophy has undergone material changes in form and substance to keep pace with costs of asset development, market risks and return expectations of investors.
• A tightly controlled regulatory framework for airports sometimes does not necessarily result in the best investment and commercial outcomes.
• It has increased the cost of regulation significantly and has adversely impacted interest from overseas investors.
• It is apparent that a one-size-fits-all approach is neither efficient nor practical given the distinct nature of assets, markets they serve and relative competitive advantages.
• With increasing digitisation and imminent digital transformation of the business, governance and independent oversight can naturally be made tighter without the trappings of an intrusive and prescriptive regulatory approach.
• With tariff setting and commercial renegotiation mechanisms internalised in PPP contracts, regulators can focus more on monitoring and enforcing the efficient preferred outcomes on service quality, including security, safety and sustainability KPIs that are essential elements of the airport and aviation businesses.

Making Air Cargo Infrastructure a national priority

• Air cargo has become a focal point of business in current times, connecting vital supply chains across the globe and keeping livelihoods alive, an unexpected positive spin-off from the pandemic.
• With belly capacity likely to be severely constrained on many international routes in the foreseeable future, the scope for extracting value from cargo handling and increased freighter movements is real and sustainable.
• There is a need to revisit the National Air Cargo Policy to address many of these newer developments with a redefined set of objectives to achieve our vision of creating a vibrant air cargo market and millions of new jobs in the next decade.
• The burgeoning growth of e-commerce, the expanding portfolio of products within its ambit and the reorganization of supply chains in the emerging new global order, makes India a haven for local production besides being attractive as a huge consumption market.
• A key focus of the policy should be on making our hub airports production, processing and transshipment centres, which is eminently possible with a renewed approach to Make In India, Atmanirbharta and acuity in monetizing scarce real estate assets.

Rationalizing taxes across the board

The cumulative impact of direct and indirect taxes in aviation is one of the highest in the world. Steps that need to be taken:

• Rationalising GST on Aviation Turbine Fuel (ATF)
• Relief for MRO (Maintenance, Repair, Overhaul)
• A full waiver of royalty payments for the next five years – a prescription made in the National Civil Aviation Policy -NCAP 2016, but not enforced
• Rationalization of lease rentals charged by airport operators, delinked from standard commercial rates, with its treatment as a priority sector by the government
• A tax incentive for Indian and foreign carriers to procure services in India, which would require a differential tax rate for Indian and overseas service providers – consistent with the tax code in other countries which support the local industry
• Option for renewal of leases for existing tenants to protect historical investments and benefit from the new discounted charges and tax levies.
• Harmonization of manuals to reconcile applicable tax rates for common-use equipment, components and parts for both civil and military clients.

Roll out GAGAN with firm timelines

• In 2012, India joined a small league of nations when it successfully configured, tested and commissioned the GPS Aided GEO Augmented Navigation (GAGAN) program, a satellite-based augmentation system (SBAS) developed to support India’s ambition of maximizing air space utilization.
• GAGAN was intended to make flying cheaper, faster and safer besides being an efficient alternative to ground-based navigation aids. It is interoperable with other satellite–based systems such as WAAS (US), EGNOS (Europe) and MSAS (Japan) giving it the ability to provide seamless services across global airspaces.
• The advantages of GAGAN are many. For example, it would obviate the need to have instrument landing systems (ILS) at smaller airports with limited air-traffic movement, avoid flight diversions, save fuel for airlines and bring down air navigation charges by allowing ground infrastructure and manpower to be optimized.
• Given the right set of wheels, it will help the industry come back stronger and more competitive in the post COVID world.

Unlocking value from Open Skies and Liberalized ASAs

• India has open skies agreements with few countries including SAARC nations and more than hundred bilateral Air Service Agreements with other countries. Open skies have proven to be beneficial for the global aviation business, offering customers choices and competitive fares which help stimulate more demand, creating a virtuous cycle.
• NCAP (2016) indicated the government’s intent to expand open skies agreements with more nations by 2021.
• The current trend on airlines preferences for more direct connections to UK, US, Europe from Indian airports is very encouraging and reflects changing passenger sentiment. But we cannot be short-sighted by just the long-haul business. We need a strategic approach to widen the market to include other growing air traffic corridors (within 5000 km) and profit from it.

Revamping the UDAN scheme

This can be done through a multi-pronged approach which goes beyond subsidies or Viability Gap Funding–

• providing adequate long-term low-cost capital to support new ventures;
• creating a strong local leasing market;
• incentivizing use of the NSOP (non-scheduled operators) fleet through code shares; and
• opening up the industry for air transport aggregators that can significantly multiply the number and frequency of users, much like the ride-hailing market in the urban transport ecosystem, which has transformed intra city travel globally.

Focusing on digital transformation

• Technology-led transformation will redefine operating models, entail investments in new assets, need supporting policy, effective regulation and cutting-edge solutions to deliver real value in a safe, secure, seamless and sustainable manner, all key themes for the future.
• This would also require harmonization of airport, airline and stakeholder SOPs globally on a suite of operating norms including data privacy, cyber security, data-sharing, digital contracts, travel documentation and border controls among others.
• The government will do well to come out with a detailed roadmap on digital transformation of the aviation industry with specific policy and regulatory guidelines to support the transition.

Making India an aviation manufacturing hub

• Indian companies have been preferred vendors for critical parts and components for the aerospace industry globally. Our design, engineering and manufacturing capabilities are second to none with many companies also leading R&D for major OEMs. A large Indian conglomerate has locally produced cabins for the S-92 Sikorsky choppers for over a decade now.
• They are also gearing up to produce aerostructures for the flagship C-130 Hercules and C-130J Super Hercules in India through a JV with the OEM. A Bangalore-based private entity is today the global sole-supplier of flap-track-beam assemblies for another global aircraft manufacturer of single and twin-aisle jets. Many other Indian companies are now preferred partners for aerospace components and equipment manufacturing.
• These projects collectively demonstrate the confidence that global OEMs have in the competence and capabilities of Indian firms and potential for scaling up the business in India.

Revitalizing India as a global tourist destination

• The synergy between the aviation and tourism sectors is inescapable. They are cornerstones of wealth creation for many successful economies that have leveraged these symbiotic industries to the hilt.
• We can triple our foreign tourist arrivals if we get our act together on three strategic elements that have proven to be critical success factors for other tourism economies

(i) High-quality tourism destinations with consistent best in-class infrastructure and state-of-the art mobility solutions

(ii) Unrestrained and reliable connectivity options by air and surface transport.

(iv) Business friendly fiscal and regulatory environment including friendly visa and immigration policies

It is time to have a joint action task force with representatives from the Aviation, Tourism, Transport, Finance and Commerce Ministries with a plan to make India the second largest tourism economy in the region after China. It will radically change the fortunes of both the aviation and tourism industries.

Conclusion

• Looking ahead, the future of the Indian aviation industry is bright. The sector is expected to see significant growth in the coming years, particularly in the areas of international travel and cargo.
• The government's continued efforts to boost air connectivity and infrastructure development are expected to further drive the growth of the sector.
• Additionally, technological advancements, such as the use of artificial intelligence and automation, are expected to bring greater efficiency and cost savings to the industry.
• While the Indian airport infrastructure creation and expansion programme is in the correct direction, execution of projects needs to be diligently monitored.

PM MITRA Schemeand Textile Sector

Context

Recently Union government announced that seven mega textile parks under PM Mega Integrated Textile Regions and Apparel (PM MITRA) scheme will be set up in the first phase.

What is PM Mega Integrated Textile Regions and Apparel (PM MITRA) scheme?

• Aim -To create world-class textile industrial infrastructure that would attract large scale investment including foreign direct investment (FDI) and encourage innovation and job creation within the sector.
• Execution of PM MITRA projects - Ministry of Textiles
• Special Purpose Vehicle (SPV) -With a 51% equity shareholding of the State government and 49% of the Centre,  SPV will be formed for each park
• Capital Support -The Ministry of Textiles will provide financial support in the form of Development Capital Support up to Rs. 500 crore per park to the Park SPV.
• Competitive Incentive Support (CIS) –Up to Rs 300 crore per park to the units in PM MITRA Park
• Plug and Play Facilities -The parks will offer an excellent infrastructure, plug and play facilities as well as training and research facilities for the industry.
• Investments -Nearly Rs. 70,000 crores investment and 20 lakhs employment generation is envisaged through these parks.
• First phase - In first phase large textile parks spread across at least 1,000 acres will come up in 7 States - Tamil Nadu Karnataka, Telangana, Madhya Pradesh, Maharashtra, Gujarat, and Uttar Pradesh.
• The scheme will provide entire textile value chain, from fiber to fabric to garments.

How significant is this project?

• Integrated Textile Value Chain– The scheme provides an opportunity to create an integrated textile value chain.
• Accelerate Exports – The parks will accelerate the pace of exports in the textile value chain and will serve as a catalyst to achieve the export target of $ 100 billion by 2030.
• Single Window Clearances -PM MITRA has single window clearances for quick decision making and timely implementation of the scheme.
• Employment -PM MITRA Parks will generate around 1 lakh direct and 2 lakh indirect employment per park.
• FDI -The scheme will be open for foreign direct investments (FDI).
• Training centers and warehouses -The scheme will have skill training centers and warehouses too
• Micro, small and medium enterprises (MSME) – Integration of MSMEs in the supply chain value of the MITRA parks will increase the employment and number of MSMEs.

Quick facts

• The Apparel Park for Exports – It was announced in 2002 to create a niche in foreign markets for apparel made in India.
• It provides financial assistance to set up apparel parks that house textile manufacturing units.
• The focus is on making high-quality textiles that are sought after in the international market.
• The Scheme for Integrated Textile Parks (SITP) – It was launched in 2005 by incorporating two Schemes
  • Apparel Parks for Export Scheme (APES) and
  • Textile Centre Infrastructure Development Scheme (TCIDS)
• Aim - To provide the industry with world-class infrastructure facilities for setting up their textile units.
• It is a model illustrating a user driven approach, with independent possession of the Micro, Small and Medium Enterprises (MSMEs).

WTO Panel Rules Against India

What was the case?

• The case involved a dispute over India’s introduction of import duties ranging from 7.5% to 20% on a wide range of IT products, including mobile phones, components, and integrated circuits.
• The EU, Japan, and Taiwan challenged these import duties in 2019, arguing that they exceeded the maximum rate allowed under global trading rules.
• The recent ruling by the WTO panel found that India had violated these rules and recommended that India bring its measures into conformity with its obligations.

WTO Panel’s Ruling

• The WTO panel has ruled that India violated global trading rules by imposing these import duties.
• The panel recommended that India bring these measures into conformity with its obligations.
• While the panel broadly backed the complaints against India, it rejected one of Japan’s claims that India’s customs notification lacked “predictability”.

Implications of the ruling

• The EU is India’s third-largest trading partner, accounting for 10.8% of total Indian trade in 2021, according to the European Commission.
• The ruling could have implications for trade relations between India and the EU, as well as Japan and Taiwan.
• India may be required to lower or eliminate the challenged import duties.
• It remains to be seen whether India will appeal against the ruling.
• If it does, the case will sit in legal purgatory since the WTO’s top appeals bench is no longer functioning due to US opposition to judge appointments.

Conclusion

• The panel recommended that India bring such measures into conformity with its obligations, and it remains to be seen whether India will appeal against the ruling.
• The case highlights the importance of complying with global trading rules and the role of the WTO in resolving trade disputes between countries.

Issues Related to Illegal Mining of Ores

Illegal Mining of Ores

• The Indian Bureau of Mines (IBM) recently raised the alarm about widespread corruption in Odisha's illegal manganese mining and transportation industries.
• In mines other than those for coal, petroleum & natural gas, atomic minerals, and minor minerals, IBM is a multi-disciplinary government organisation under the Ministry of Mines that promotes conservation, scientific development of mineral resources, and environmental preservation.

Highlight

• Odisha is a mineral-rich State that has 43.64% of manganese, 33.61% of hematite iron ore, and 96.12% of the nation's chrome ore.
• Mining lease holders in Odisha sent low-grade manganese ore from their mines to brokers in West Bengal, who then sold it as high-grade without further processing.
• Some mining businesses in Odisha are involved in underreporting the amount of minerals produced and transported, as well as paying the proper royalties and taxes.
• The issue of manganese ore grade decline is significant because it could have an impact on the product's quality and worth, which would cause the state government to lose out on money.

About mining

• The mining industry is a key economic sector in India and makes a sizable contribution to the national economy. There are currently around 3,500 mining leases in operation throughout 23 states, totaling 316,290.55 hectares. Nearly 70% of the total is made up of Madhya Pradesh, Tamil Nadu, Andhra Pradesh, Gujarat, and Karnataka. But these natural mineral extractions frequently result in imbalances, which have a severe detrimental effect on the environment.
• Mining is the process of removing rich minerals or other geological components from the Earth, typically from an orebody, lode, vein, seam, reef, or placer deposit.
• Environmental harm is virtually always caused by mining operations, both while the mine is operating and after it has shut down.
• The majority of nations have therefore established restrictions to lessen the effect.
• Mining's importance to India's economy
• India's GDP is anticipated to expand at a rate of about 7% during the next few years.
• The nation's need for steel and power will rise as infrastructure and automobiles get a new lease of life.
• These sectors are expanding quickly and depend on the mining sector for their raw materials.

About illegal mining

• The removal of minerals, ores, or other valuable resources from land or water bodies without the required permits, licences, or regulatory clearances from public authorities is known as illegal mining.
• It may also involve breaking laws governing labour, safety, and the environment.

Challanges faced

• Large-scale displacement causes people to feel alienated and untrusting of the government apparatus, which results in complaints and inadequate rehabilitation initiatives.
• In addition to losing land, the local community is also losing their unique tribal culture and way of life.
• States with abundant natural resources like Chhattisgarh, Jharkhand, and Odisha have seen a rise in left-wing extremism.

Health and environmental issues

• The ecology has been seriously harmed by coal mining, the Makrana marble mines in Rajasthan, the granite mines in Karnataka, and the Damodar river has been severely harmed by mining for coal.
• Biodiversity and cultural heritage have been lost as a result of mining.

Administration of Justice

• Arbitrary allocations for coal mines are followed by long legal battles, annulment of allocations, and charges of corruption in block allocations.
• Environmental approvals are delayed as a result of bureaucratic obstacles.
• As a result of judicial intervention, investors experience lengthy delays and losses.
• Governments may experience a loss of revenue as a result of miners' potential failure to pay required taxes and royalties.
• This can have a big influence on the economy, especially in places where natural resources are a big source of income.
• Violations of Human Rights
• Human rights violations caused by illegal mining may also include forced labour, child labour, and the exploitation of weaker groups of people.

Governmental Efforts

• In order to establish a framework for the long-term development of the Indian mining industry, mining leases are granted a star level.
• A Memorandum of Understanding was signed in January 2016 between the Indian Bureau of Mines (IBM) and the National Remote Sensing Centre (NRSC), ISRO, to launch a pilot study on "mining activity monitoring using satellite imagery" to stop illegal mining.
• A device called the Mining Surveillance System (MSS) uses autonomous remote sensing to find unlawful mining.
• The District Mineral Foundation Fund (DMF) was formed under the Pradhan Mantri Khanij Kshetra Kalyan Yojana [PMKKKY] for the benefit of individuals and regions impacted by mining.
• To attract private exploration firms, the National Mineral Exploration Policy was developed.
• The automated route allows 100% FDI in the mining and exploration of metal and nonmetal ores.
• The state government is required to own the minerals found within its borders through an entry in List II (State List) at serial number 23.
• The central government is required to own the minerals located within India's EEZ by the entry at serial No. 54 of List I (Central List).
• This led to the creation of the Mines and Minerals (Development and Regulation) (MMDR) Act of 1957.
• The International Seabed Authority (ISA) oversees deep sea mineral exploration and exploitation in the international seabed region outside of the purview of national sovereignty.

Data and facts

• India's coal production increased by 8.55 percent to 777.31 million tonnes (MT) in FY 2021–22.
• As of 2021, India was the second-largest coal producer in the world.
• India's mineral production is anticipated to total Rs. 190,392 crore (USD 24.95 billion) in FY22.
• In terms of iron ore production, India comes in fourth place worldwide. The amount of iron ore produced in FY21 was 204.48 MT.
• India was the world's second-largest producer of aluminium in FY21 with combined primary and secondary production of 4.1 MT annually.

Way ahead

• Drones, GPS, and other cutting-edge technologies can all be used to monitor and find unlawful mining activity.
• To better deter unlawful mining, the legal and regulatory system surrounding mining needs to be tightened.
• It can be accomplished by passing stricter legislation, enhancing enforcement techniques, and stiffening fines for illicit mining operations.
• To address their concerns and make sure their operations are sustainable, mining firms should collaborate extensively with the local community.