The Index
Emcee
Tata AirlinesLong protected by the government, India's domestic aviation sector is currently void of capacities with only Indian Airlines, its subsidiary Alliance Air, Jet Airways and Sahara being the few survivors of the open skies policy. Besides logistics, trained manpower and financial strength involved in running an airline, most of the private players also underestimated government policy which was loaded heavily in favour of Indian Airlines. A fact which is clearly reflected in the unceremonious winding-up of air taxi operators such as Modiluft, East West, NEPC and NEPC Skyline in less than five years of announcement of the open skies policy. The sudden winding up of these airlines has left a void in capacities. It is probably with an intention to fill this void, considering that the passenger traffic in India is slated for a double figure growth over the next couple of years, that the Tatas recently revived their plans for entering the civil aviation sector. More importantly, the Tatas
are said to be contemplating the launch of a scheduled domestic airline, sans any equity participation from Singapore Airlines. However, this venture would be only a scaled down version of the original plans. The Tata-SIA project had envisaged an operational fleet strength of 19 aircraft, with an investment totalling Rs 2,480 crore over five years. The reworked plans reportedly estimate a fleet size of 7 aircraft and a total investment of Rs 1,475 crore over five years, of which Rs 695 crore would be the equity component. Although quite sketchy, the funding pattern for the equity could entail a 40 per cent shareholding by FIIs, who given the Tata name would willingly fork out the money. However given the cash requirements for some of the group's on-going projects and a marked slowdown in some of its lines of business, the Tatas could well feel the pinch while forking out the Rs 420 crore required for their part of the equity. What prompts the Tatas to venture alone in an area which is not even remotely
related to any of its existing businesses, however, remains a mystery. Also the fact that running a scheduled domestic airline is a capital intensive business with wafer-thin margins, should have deterred the Tatas. They may have to bear considerable losses initially given the long gestation periods involved. Thus, rather than go in for a full-fledged scheduled airline, some industry watchers feel that the Tatas would do well to initially test the waters by operating in a niche area - for example plying smaller feeder routes which besides a lower initial investment requirement, will also have lower operating costs. Hotel industry Given that the hotel industry is among the largest net foreign exchange earners in India, it is no surprise that the slowdown in tourist arrivals has jerked the Indian government into action. CMIE figures reveal that for the period April-October 1997, the growth in tourist arrivals has been a mere 3 per cent compared to the five per cent growth last year. Cumulative
foreign exchange earnings from tourists at $1,526 million for the same period was up just 4.38 per cent. That the government is worried, is clearly reflected in the two recent measures for jump-starting the tourism industry-the first being removal of the minimum period stipulation of seven days for charter tourists. The second, the abolition of the dual tariff system (most hotels in India operate on a dual tariff structure, a lower price for Indians, which is marked up for foreign tourists). The hotel industry will obviously be affected, although the shortage of hotel rooms in the country will mean that tariffs may not fall all that much. However, if hotels have to fix one tariff-either in rupees or in dollars, this would be extremely difficult to implement, since the rupee-dollar parity keeps on changing. Thus, rather than meddling with tariff structures, the government would do well to market India through tourism promotions coordinated with tour operators. The best medicine for the tourism industry
would perhaps, be the development of adequate infrastructure. India's tourism potential can be gauged by the fact that Hong Kong attracts five million tourists a year, compared to a mere two million in India. DGFT norms The recently announced indigenisation norms by the directorate general of foreign trade (DGFT) has removed some of the gray areas which plagued the earlier policy. The latest auto policy, although more practical in its approach, contained a lot of gray areas which were open to misinterpretation by auto-manufacturers. Probably the largest gray area that remained was the treatment of local vendor imports while calculating the car makers' "indigenised content." As per the new norms of the DGFT, the weighted import content of each vendor will be clubbed together and factored into the import content of the car manufacturer. What this would mean is that each ancillary vendor would have to declare the import content of their product, which would then be taken into to account while
calculating the net import content for a specific car project. Thus, this anomaly has now been rectified. The policy is silent on the applicability of the new norms on those car manufacturers that have already signed MoUs with the government. Do these car makers adhere to the new guidelines regarding exports obligations / indigenisation contents? Is there some kind of time frame for the adherence to the new guidelines by the older players? Most importantly, these directives imply micro-management of the industry -- money invested in the industry would be best used if the markets were allowed to dictate terms, instead of government regulations.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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