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Indian Economy

India has emerged as the third largest domestic aviation market in the world. The number of major airports increased from 12 to 27 between 2007 and 2017.

The Airports Economic Regulatory Authority of India Act, 2008, was enacted to provide an independent authority to protect the interests of airports, airlines and passengers, and to primarily regulate tariff for aeronautical services rendered at airports. Aeronautical services include navigation, surveillance and supportive communication for air traffic management; services for the landing, housing or parking of an aircraft; ground safety, fuel and handling services; and so on.

Exponential growth in the sector has pushed the government to propose an Amendment Bill in 2018. The Airports Economic Regulatory Authority has been under tremendous pressure with an increase in the number of private operators entering the airline/airport sector. Some of the major airports now function under public-private partnerships. It was felt that if too many airports come under the purview of the Authority, it would be difficult to efficiently determine the tariffs and monitor the service standards of major airports. For engaging private partners in infrastructure projects, several business models like predetermined tariff or tariff-based bidding have come into place. The airport project is awarded to the concessionaire who offers the lowest tariff.

In this model, the government has found that the market itself determines the charges. The regulator is not required to fix charges after the award of the project. The 2008 Act does not cover such complexities. Thus, the Airports Economic Regulatory Authority of India (Amendment) Bill, 2018, proposes to first amend the definition of “major airport” as any airport with passengers in excess of 3.5 million from the existing 1.5 million.

The AERA Bill, importantly, seeks to update Section 13 of the 2008 Act in tune with the current business models and tariff system. This would mean changes in the tariff for aeronautical services at major airports. Section 13 is an umbrella provision in the Act which further covers capital expenditure incurred and timely investment in improvement of airport facilities; the service provided, its quality and other relevant factors; cost for improving efficiency; and economic and viable operation of major airports; among others.

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