Why Suresh Prabhu’s claim on Modi government’s achievement in aviation is unconvincing

To mark the fourth anniversary of the Narendra Modi government, ministers have used different platforms to highlight areas where they believe government has the right to claim credit.

Two tweets by civil aviation minister Suresh Prabhu, according to a story in The Economic Times, highlight the growth in passenger traffic and a simultaneous decline in airfares.

The relevant tweets are as follows.

“Average airfares fell by 18% in 2017 over average air fare in 2015, making air travel more affordable for everyone.”

“Indian scheduled airlines carried more than 12 cr domestic passengers during FY18 as against 6.1 cr in FY14, recording growth of 19% CAGR. Strategic policies resulting in enabling more Indians to fly than ever before.”

Was Prabhu right in attributing “strategic policies” for the growth in passenger traffic and affordability?

No. There is no evidence to suggest that strategic policy triggered these developments.

India’s civil aviation sector is dominated by private sector which has around 86% of market share. Their performance has been impressive in terms of passenger traffic growth. Even in 2018, growth has been impressive. Between January and April, passengers carried by domestic airlines was 45.3 million, higher by 24.41%.

The high growth in traffic has not always been accompanied by a growth in profitability. But the last three years can be classified as relatively good years, partly on account of the decline in international crude price between 2014 and 2017.

That trend is changing. Airfares have begun to rise on account of a change in the price trend of crude. To illustrate, aviation turbine fuel in June was increased for the 11th straight month and is at its highest rate since May 2014. IndiGo, market leader in domestic aviation, has already increased its fare.

To understand why Prabhu’s claims on aviation are unconvincing, one should take a look at his performance as railway minister. In railways, government has a monopoly. A sharp improvement in traffic and earnings in railways, if any, could be legitimately attributed to “strategic policies.”

According to CAG, there has been a decline in passengers originating in railways during the Narendra Modi regime. In 2012-13, railways recorded 8,420.71 million passengers originating. By 2016-17, it had declined by 3.62% to 8,116.10 million.

Was it because railway fares were no longer affordable?

That seems unlikely, as CAG pointed out that losses on passengers and coaching services had only increased. By 2015-16, losses had mounted to Rs 36,286.33 crore from Rs 26,025.46 crore in 2012-13.

The Modi years have seen a decline in passenger originating while the attendant losses mounted in railways, an area where the government has a monopoly.

In all likelihood, the boom in passenger traffic in aviation has a lot to do with market conditions and the efforts of the aviation companies. Perhaps, it is in the nature of governments to take credit where it may not be due, but sidestep embarrassing performances in areas under its direct control.


Source: https://blogs.timesofindia.indiatimes.com/cash-flow/why-suresh-prabhus-claim-on-modi-governments-achievement-in-aviation-is-unconvincing/

DISCLAIMER : Views expressed above are the author’s own.

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