This group of foreign investors met union civil aviation minister Ashok Gajapathi Raju and aviation secretary RN Choubey earlier this month and sought to impress upon them that aviation is a risky business and , therefore, the Government must allow higher returns to make them feel comfortable. These investors also reportedly raised regulatory issues saying that the Airport Economic Regulatory Authority Appellate Tribunal (AERAAT) was too slow in disposing off matters.

It is true that risk in aviation business is higher than other public-private partnership sectors like power, utilities and transportation etc because of global factors on which no one authority can exercise control. Global economic slowdown, for example, can adversely affect aviation business. Issues like terrorism can impact air traffic growth and thereby hurt revenue earnings. Oil prices in the past have marred air traffic growth in several parts of the world, especially in emerging economies. In other words, international investors may have a point in asking for a cushion. Why else would they not like to join in India’s growth story in the aviation sector which is consistently showing double digit growth for some years?

There has been lukewarm response from global players in the aviation sector in India. Take, for example, the bidding for the second airport in Goa. According to reports, only one foreign investor Incheon International Airport of South Korea submitted financial bid. Incheon, if successful, will partner with the Essel Group of India. Another foreign player Vinci of France which tied up with the Hiranandani Group of India reportedly opted out.

Foreign investor response is said to be equally tepid even for Navi Mumbai airport project for which the bidding process is underway. It is learnt that only Zurich Airports and Vinci Concessions of France have shown interest. Foreign companies, on the other hand, are known to have shown interest in airports projects in countries like Philippines and Indonesia.

These developments should not be taken lightly by the Government. Entrusting such important issues with the aviation ministry alone would be a big mistake for the Modi government. The Government must set up an inter-ministerial high level team to settle such issues with experts from the industry as well. This is necessary in view of the fact that India’s new civil aviation policy announced just a few months ago is highly ambitious in terms of growth prospects of the sector. The policy runs the risk of getting derailed if proper atmosphere is not built for growth to take off. Regional connectivity is the cornerstone of the new aviation policy. Connectivity requires infrastructure facilities like airports. Foreign equity participation is urgently required as India’s public and private sectors do not have enough funds.

Apart from funding issues, the foreign investors group rightly pointed out India’s slack regulatory environment. The Airport Economic and Regulatory Authority Appellate Tribunal Authority is believed to be sitting in certain cases for four to five years. Why will investors put their money where dispute resolution takes so long to settle?

India has been known to be painfully slow in making decisions because of plethora of bureaucratic cobwebs. Modi government has been claiming for some time that India’s ranking in the ease-of-doing-business has moved up. As the saying goes, the taste of the pudding is in the eating. Why are foreign investors not taking the bait? Aviation sector investment should be the test case and eye opener.

India needs to upgrade more than 200 airports around the country to provide adequate regional connectivity as envisaged under the new civil aviation policy. Foreign investors are willing to come but they require confidence and support which only the government of the day can provide. Like the GST legislation, the Government needs to put in place strong laws governing the infrastructure sector backed up by equally strong regulatory mechanism in order to attract foreign investors. (IPA Service)