Air cargo – the potential force multiplier to achieve USD 5 trillion economy vision

By Ajay Singh

The global air cargo industry is a USD 117 billion industry that deploys over 1,870 freighters. Combined with the pre and post air-freighting activities that are ancillary to air freight, custodian services, ground handling, cargo handling, and transit warehousing, the air cargo industry is worth over USD 1 trillion. Of this, the Indian air cargo industry is estimated to be USD 8 billion, a mere 0.8%.

India is advantageously positioned from a geographic point of view, situated as it is between the manufacturing hubs to the east and south east of Asia, and with the consumption centres in Europe and the Americas. The National Air Cargo Policy 2019 (“NACP”) rightly proposes to capitalise on this advantage by highlighting the creation of transportation hubs at all major Indian airports in the run up to 2025.

The Krishi UDAN scheme launched by the Government of India (“GoI”) has connected farmers from regions with sporadic and problematic road and rail connectivity, thereby lengthening transit times, to the main consumption centres of India through air cargo. The Ministry of Civil Aviation’s (“MoCA”) Incentive Scheme has benefited the shippers, farmers, and the regional airports. This has helped the domestic air cargo industry grow and establish itself as a feasible mode of transport of perishable commodities.

The air cargo industry needs further promotion, and is capable of acting as a force multiplier in achieving India’s vision of a USD 5 trillion economy. The GoI has, through policy intervention, assisted its growth by withdrawing the unrestricted Open Skies Policy to promote Indian Carriers, including restriction of non-scheduled operations of foreign carriers to the six major metros of India, on a case to case basis.

During this COVID-19 pandemic, which has wrought devastation across the nation both from a humanitarian and economic standpoint, the aviation sector, and in particular the air cargo industry has emerged as a rare success story.

During the lockdown when other modes of transport were constrained, air cargo helped maintain crucial supply chains, including for the transport of food, medicines and other essential commodities, both within the country and from all around the world. Air cargo was a lifeline for our farmers, including our marine and aquaculture farmers.

The last fiscal year has witnessed an unparalleled growth spurt in air cargo in India. The number of freighters being operated by Indian carriers has increased from 5 as of March 2020 to 25 as of today, and the share of cargo carried into and out of India by sovereign flag carriers has increased from 2% to 19%. For the first time, an Indian flag carrier has broken into the top ten carriers of cargo from India in the WorldACD air cargo rankings.

Enlightened policy making of the GoI and the MoCA has given India a tremendous opportunity to generate massive revenue from air cargo and retain the GDP generated from its own traffic within the country, rather than have it distributed among international carriers and foreign nations.

To encourage and promote the promising air cargo sector in the country and give a further boost to initiatives such as the Krishi UDAN Scheme, the GoI may consider proactive policy intervention. Some of these steps can be:

1. Exempt landing, parking and navigation charges for all cargo aircraft operated by Indian carriers for a period of 3 years.

2. Exempt excise duty on aviation turbine fuel for all cargo aircraft operated by Indian carriers for a period of 3 years.

3. Partner with states and request an exemption of VAT on aviation turbine fuel for all cargo aircraft operated by Indian carriers for a period of 3 years.

4. Approach the GST council and request that transport of goods by air be subject to GST at a rate of 5% in line with the transport of goods by other modes such as rail and road.

5. Self-handling of cargo to be allowed at AAI and private airports to Indian carriers operating 5 or more freighter aircraft. In some airports, the cost of outsourcing these activities to a common user terminal (“CUT”) as is standard practice is prohibitively expensive. For instance, the cost of processing cargo at the CUT at Ahmedabad Airport is Rs. 8 per kg, which is higher than the cost of road transport from Delhi to Ahmedabad.

A key measure that can be implemented in order to achieve the USD 5 trillion economy is to optimise the use of India’s multi-modal infrastructure. India has the fourth largest railway network in the world, and by complementing air freight, this can provide significant fillip to this vision. Cargo shippers are of late vociferously demanding expeditious connectivity at lower costs, which can be achieved by connecting the air cargo network to the Indian Railways network. Additionally, railways can connect major sea-ports, airports and railway hubs. This can give Indian as well as international shippers a vast Air-Sea-Rail network, with several probable combinations of transit times, costs and convenience to transport their shipments.

India’s neighbours, particularly Bangladesh, Sri Lanka and Myanmar, are major manufacturing hubs, and have sizeable international trade with Europe and the United States. These countries have limited air connectivity to the consumption centres, and the multi-modal connectivity that the Indian logistics network can provide can be an advantage to these countries, as well as the Indian logistics and infrastructure industry.

The air cargo logistics and fulfilment industry is a sunrise sector with a massive potential to generate revenue and create jobs in India. We need to work together to realise this potential and build an industry that we can all be proud of.

(The author is CMD, SpiceJet. The views expressed are his own and not necessarily that of Financial Express Online)