09 May, 2021 - Daily Current Affairs Analysis & MCQs - The Daily News Simplified from The Hindu
UPSC Current Affairs: Hope soars as Second World War airport in Assam takes commercial wings I Page 08
UPSC Syllabus: Prelims: Social Justice | Mains – GS Paper II – Social Justice
Sub Theme: The Problem of Rent for informal workers | Affordable Housing | UPSC
Tax on aviation turbine fuel is among the highest in the world
Aviation Turbine Fuel (ATF) is the lifeblood of aviation. Indeed, ATF, or jet fuel, constitutes up to 40 percent of an Indian airline’s cost base and consequently, ends up as one of the largest expense items. Globally, this figure averages roughly 20 percent.
India’s airlines have pressed ahead on new technology, tinkering, volume purchases and other actions that impact liquidity in order to offset the input costs. Yet, sadly, the industry has seen little respite on this front.
ATF continues to be out of the purview of the goods and services tax implemented in 2017, leading to incredibly thin margins of 2-4 percent. Compare this to putting one’s money in fixed deposits, which are yielding 7-8 percent, and one can gauge the gravity of the situation.
Constrained runway capacity poses an imminent threat
While shiny new runways have been built, there has been a net addition of only one runway in the last 50 years. The country has a total of 449 airports but metro airports continue to be key to aviation traffic with about 61 percent of the domestic traffic and about 73 percent of international traffic still originating from the six metros — Delhi, Mumbai, Bengaluru, Hyderabad, Kolkata and Chennai. With the exception of Bengaluru, which will see the addition of an additional runway this year, the capacity expansion at other airports lags or is non-existent. Significant investment in airports has gone towards making terminals which don’t quite suit the market demand. The number of runways has not increased (with the exception of Delhi airport). New runways that are to come up are years away.
For airlines this means that they are forced to fly unviable routes. And for passengers this means that fares in constrained airports will inevitably rise.
The extent of this issue is highlighted with how airlines have complicated their business models and added to costs in an extremely price sensitive market in order to gain access to slots.
The costs of new airport capacity are unrestrained
The funding mechanism of airports is such that the costs of incorrect capacity planning are borne by passengers via development fees. The numbers speak for themselves. In the case of Delhi airport, the final project cost was 3.8 times the initial estimate and in the case of Mumbai it was 1.7 times the initial estimate. The cost of these overruns was covered by the flying public.
Both airports were allowed to levy development fees to the tune of nearly Rs 3,400 crore. The contribution via fees levied on passengers being 1.2X–1.4X the equity contribution in the case of Delhi and 3.0X–3.2X in the case of Mumbai. This is neither a fair nor a sustainable proposition.
Similarly, when one looks at till structures — which determine how tariffs are set and determined by airports — there is a leaning towards hybrid-till structures that are not conducive to keeping costs low. The argument airports make is that without such structures airports will not be able to get capital commitments required to modernise airports and generate an adequate return on equity but the need of the hour is to revisit the cost of building airports first and examine new innovative methods of building low-cost and high quality infrastructure that is fit for purpose.
The Next Generation Airports for Bharat (NABH) Nirmaan policy was a step in the right direction. Yet, when closely examined and with the numbers being floated for the upcoming Jewar airport, where the initial estimate is upwards of Rs 20,000 crore, it does not make for a very strong case.
The cost of capacity if not restrained will hamper aviation growth.
MRO taxation is forcing airlines to go overseas for maintenance
Other than ATF, the other large expense item for airlines is the maintenance and repair (MRO) of aircraft. Taxation on MRO is irrational at best. Maintenance and repair taxation in India remains the highest globally. With an 18 percent GST levy, providers have to compete on sale price with overseas players that only pay 5 percent — that too at cost price. This gap: 20-22 percent. Consequently, most airlines contract their maintenance overseas, leading to a loss of jobs and output.
MRO setups are capital intensive and require significant investment in terms of infrastructure, material, training of manpower and technology. The National Civil Aviation policy (NCAP 2016) attempted in part to address this issue by limiting the royalty and additional charges and mandating that these not be levied on MRO service providers for a date of five years from the date of approval of the policy. Yet, the royalty is still being imposed under different classifications ranging from 11 percent to 30 percent.
Sadly, given this complicated structure, foreign carriers have leveraged on the MRO potential of India while India itself lags behind. The tax policy has led to airlines to outsourcing majority of the $1.4 billion MRO business to international providers.
Lending to airlines is severely constrained
Indian airlines are sitting on tremendous fleet orders. And these orders and expansion plans of airlines require financing. In the current environment, banks are extremely reluctant to lend to aviation. The reasons are many, including fluctuating EBITDAs, weak balance sheets, systemic impacts of an ongoing crisis with Jet Airways and the NPA clean-up.
Some airlines have gotten around this using the sale-and-leaseback mode. Yet, it is a model that depends on liquidity of the asset type and one that is leading to weak balance sheets in the case of Indian airlines (the exception being Indigo).
In spite of being a key growth market in Asia, private capital is reluctant to enter the aviation not only because of the challenges highlighted (ATF taxation, constrained airports, MRO taxation) but also due to the legal procedures where contract enforcement is challenging at best.
Restructuring of regulatory bodies
With aviation growth the demands on the regulator are ever increasing. The last five years saw a determined approach to strengthen these bodies but even simple items like digitisation of records was met with significant hurdles. The new government is likely to push through additional measures. Reinvigorating bodies such as the Directorate General of Civil Aviation, the Airport Economic Regulatory Authority and the Bureau of Civil Aviation Security towards stronger oversight would likely be very welcome by most stakeholders.
Given the consistent feedback loops that the government has employed, consultations will likely have to be a focus area. The current nature of consultations in many areas is restricted to direct stakeholders. For a truly comprehensive reform inter-ministerial and ‘inter-regulatory’ consultations including a seat on the table for representatives for the travelling public will propel the sector forward.
The sustainability of the UDAN scheme
The Ude Desh Ka Aaam Nagarik (Udan) scheme has been a flagship scheme for NDA1. Focused on connecting unserved and underserved airports, Udan spurred a host of regional airlines to come up and existing operators to enter regional flying. While it can be argued that the scheme has been a success highlighting the new destinations connected, a look at the sustainability of regional airlines paints a different picture.
The UDAN scheme is funded by a levy on passengers flying metro routes. The funds collected are then used to subsidise UDAN routes. Recent indications are that if all Udan routes that have been bid are flown, there is likely to be a funding deficit. Addressing this deficit in an environment where passenger numbers are likely to fall further will be a challenging proposition.
While the viability of UDAN is addressed policymakers may also have to look at the sustainability of the scheme and how to revitalize regional operators.
As India positions itself to lead and play a dominant role globally, its aviation sector cannot be overlooked. Especially as this sector acts as a growth multiplier including economic output, jobs and trade – all enabled via better connectivity. With a growing middle of 300 million-plus, a trend towards urbanisation, increased travel demand, a rising propensity to spend, and significant capacity entering the market – all key factors for aviation growth are aligned.
But for this growth to materialise sustainably, policy interventions are necessary. An unfinished aviation policy agenda remains.
UPSC Current Affairs: FCRA hurdle may block foreign COVID aid to hospitals, NGOs I Page 08
UPSC Syllabus: Prelims: FCRA rules | Mains – GS Paper II – NGOs
Sub Theme: Foreign Contribution Regulation Act | UPSC
Context: Indian entities, including hospitals and charitable trusts, hoping to receive COVID-
19 relief material from overseas individual donors or donor agencies, are facing delays as they are not registered under the Foreign Contribution Regulation Act (FCRA).
Background: the government permitted imports without GST levies for pandemic relief material donated from abroad for free distribution in the country, delegating States to certify the entities that will receive such imports.
What is the issue: there is no exemption under FCRA currently. So, recent permission by the government has created more confusion. Lack of FCRA nod for foreign donation is keeping the process delayed. FCRA does not provide any kind of blanket exemption on imports or donations.
Way forward: Centre can issue a clarification exempting the receiver/importer of medical aid from complying with the FCRA provisions for approval and other compliances.
More on FCRA: Foreign Contribution (regulation) act, 2010.
It is an act to consolidate the law to regulate the acceptance and utilisation and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.
- FCRA 1976 was replaced with FCRA 2010 and it was amended in 2020.
- As per Section 1(2) of FCRA, 2010, the provisions of the act shall apply to:
- Whole of India
- Citizens of India outside India; and
- Associate Branches or subsidiaries, outside India, of companies or bodies corporate, registered or incorporated in India
- "foreign contribution" means the donation, delivery or transfer made by any foreign source ─
- of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift is not more than such sum as may be specified from time to time by the Central Government by the rules made by it in this behalf.
- of any currency, whether Indian or foreign;
- of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security
Note: normal banking transfer of money by the Indian Resident abroad (NRI) to India is not counted under FCRA.
- Who can receive foreign contribution
Any “Person” can receive foreign contribution subject to following conditions:-
- a) It must have a definite cultural, economic, educational, religious or social programme. • b) It must obtain the FCRA registration / prior permission from the Central Government • c) It must not be prohibited under Section 3 of FCRA, 2010.
- Following are prohibited to receive foreign contribution:
- candidate for election;
- correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
- Judge, Government servant or employee of any corporation or any other body controlled or owned by the Government;
- member of any legislature;
- political party or office bearer thereof (from Individual donors)
- organization of a political nature as may be specified under sub-section (1) of Section 5 by the Central Government.
- association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode, or any other electronic form as defined in clause (r) of sub-section (1) of Section 2 of the Information Technology Act, 2000 or any other mode of mass communication;
- correspondent or columnist, cartoonist, editor, owner of the association or company referred to in point.
- Individuals or associations who have been prohibited from receiving foreign contribution.
FCRA amendment 2020: the new act says that foreign contributions received by an organisation cannot be transferred to any other person or organisation unless that person or organisation is also registered to accept foreign contributions.
Issues with the FCRA:
- Issues lies with ambiguity in words such as Public interest or economic interest.
- Recent amendment would restrict those small NGOs that are unable to get registered yet require funds.
- It would also cause delayed functioning to those subsidiary NGOs which are dependent on other Large NGOs for funds.
- The FCRA restrictions have serious consequences on both the rights to free speech and freedom of association under Articles 19(1)(a) and 19(1)(c) of the Constitution.
- By allowing only some political groups to receive foreign donations and disallowing some others, can induce biases in favour of the government.
- Many NGOs have been de-registered by the security agencies on public interest with clear explanation.
- Without the registration under FCRA, no NGO can receive funds over rupees 25000 at one time. This has restricted smooth functioning of many NGOs in recent times specially those with
- FCRA should be amended to bring parity based on the constitutional values.
- Emergency clause could be added in the act to deal with medical problems.
- Single window provision for registration of the NGOs and for their grievance redressal.
- Upper limits for non-registered NGOs can be increased for the time being.
UPSC Current Affairs: Probe into digging, construction activities in Kaziranga | Page – 06
UPSC Syllabus: Mains – GS Paper III – Environment and ecology
Sub Theme: Kaziranga National Park | UPSC
Kaziranga National Park
It is a national park in the Golaghat, Karbi Anglong and Nagaon districts of the state of Assam, India.
The sanctuary, which hosts two-thirds of the world's great one-horned rhinoceroses, is a World Heritage Site.
Kaziranga is home to the highest density of tigers among protected areas in the world, and was declared a Tiger Reserve in 2006 (now the highest tiger density is in Jim Corbett).
The park is home to large breeding populations of elephants, wild water buffalo, and swamp deer.
Kaziranga is recognized as an Important Bird Area by BirdLife International for conservation of avifaunal species.
Located on the edge of the Eastern Himalaya biodiversity hotspot, the park combines high species diversity and visibility.
Kaziranga is a vast expanse of tall elephant grass, marshland, and dense tropical moist broadleaf forests, criss-crossed by four major rivers, including the Brahmaputra, and the park includes numerous small bodies of water. Kaziranga has been the theme of several books, songs, and documentaries. The park celebrated its centennial in 2005 after its establishment in 1905 as a reserve forest.