Udan, or the ponderously labelled Ude Desh Ka Aam Naagrik, is a scheme designed to stoke demand for regional air travel and revive the 300-odd small airports (out of a total of 400) that are non-functional. Much ink and many bytes have been expended on explaining a scheme that caps the fare of a one-hour flight at Rs 2,500 and offers operators a subsidy to price half the seats on an aircraft at this subsidised rate. In a method reminiscent of the bidding for ultra-mega power projects under the United Progressive Alliance, the operator that quotes the lowest subsidy is awarded the route. What pricing norms apply to the other half of the seats that are “unsubsidised” is unclear. Some reports suggested that airlines could reap the benefits of ultra-premium prices on these seats — which, you would think, argues against the need for subsidies in the first place…
It bears asking why a government that is apparently committed to fiscal rectitude and rolling back subsidies, as it is doing in cooking and auto fuels, should earmark resources for a scheme that has few sustainable virtues. The final hit for the government is unclear because of the myriad implicit and explicit subsidies — a waiver of airport charges, a generous service tax abatement and excise breaks on aviation turbine fuel. Some of the exemptions are time-barred — between one and 10 years — which raises the question of what happens once these props are removed. The states’ experience with 10-year “backward area” tax breaks for designated manufacturing hubs suggests the experience has not been a happy one when the “sunset clause” kicks in.
The National Civil Aviation Policy announced less than a year ago, which aimed “to make flying affordable to the masses”, paradoxically spoke of a “demand driven” revival of airports/airstrips. If there is demand, then why offer a subsidy? Who benefits? Where is the market?
Consider the Delhi-Shimla route, which the prime minister inaugurated last week. The airfare for a one-hour journey is a little under Rs 2,500. A 12-hour bus ride on a luxury bus is less than half that, and the six-hour train journey (via Kalka) costs roughly Rs 1,300. It is worth wondering whether those who wear “hawai chappals”, in Mr Modi’s vivid phrasing, would be willing to pay more than double the amount for “hawai yatra”, even with the time saving thrown in. It is the narrow cohort of the emerging rich —the kind who would not, incidentally, be seen dead wearing hawai chappals in public — that may evince interest in such short-haul flights, and it is no coincidence that this class forms the core of the Bharatiya Janata Party’s electorate. But should they be the beneficiaries of a subsidy?
If Every Indian is Important, then it follows that the Railways, which carries more than 20 million passengers a day, should surely be the focus of similar government attention. Not by attracting fare subsidies but in terms of a sorely needed upgrade of passenger facilities. True, impressive new air-conditioned three-tier coaches are on the sidings, awaiting a flag-off later this month, but they’ll be the preening exceptions on a network where extreme grunge is the norm.
Recall also that proposals to attract private investment in stations, which would effortlessly win awards for being the dirtiest in Asia, have been non-starters since 2007. Some “viability gap funding” here may well have stoked investor interest, and given the magnitude of the railway network the spin-offs would have been greater.
The aviation policy quotes an International Civil Aviation Organisation study that puts an output multiplier at 3.25 and an employment multiplier at 6.10 from the aviation sector. For the railways, the output multiplier alone is more than five so the jobs ecosystem would be exponentially bigger. And as pertinent in unequal India, a laser focus on a clean, efficient railway system, the hallmark of the East Asian Tiger economies, would be a more genuine expression of the EPI sentiment than any subsidised low-cost flight.
