Aviation industry has been facing big losses and rising expenses, and the minister suggested a way out. At Outlook Business Leading Edge 2019, he advised not getting involved in “unproductive” competition.
Minister of Civil Aviation, Urban Affairs and Housing, Hardeep Singh Puri, recalled the example of Japanese watchmakers, who he met during his time in the Indian Foreign Service as a young language officer in Tokyo. He asked them how they expected to compete with Swiss manufacturers who have years of experience. One of the watchmakers told him that they sat down with a map of the world and divided it into three markets, one for each of the three Japanese manufacturers. This model of sharing the market was perhaps meant as a suggestion for low-cost carriers because, he went on to add: “I have absolutely no doubt that if all four low-cost carriers sit together, there is enough money to be made for all four to be successful.” Throughout his speech, the minister spoke of how industry leaders can play a crucial role in the functioning of a healthy economy, reminding them that the present economic hardship has arisen also out of bad business practices.
While analysts have agreed that this race to lower prices, to gain more passengers, is costing airlines dearly, they also say that rise in jet fuel prices is also bleeding the sector. It is the biggest cost that an airline has to bear and rupee weakening against the dollar has not helped. About the fuel concern, the minister was less illustrative, saying briefly, “We are trying to handle the jet aviation fuel pricing.”
Instead of focusing on the negatives, the minister chose to talk about the height the aviation industry is touching. “One of our airlines has ordered 300 aircraft — probably one of the largest orders ever placed,” he noted. Puri hopes to see 2,000 aircraft in Indian skies soon, rising from the current 690. Today, Delhi airport handles 70 million passengers, and with the opening of a fourth runway, that number is expected to rise to 110 million, he said. To take some load off the airport at the capital, the government has awarded the construction of another airport at Jewar to Zurich Airport AG, approximately 80 kilometres from IGIA. “The airport is likely to be operational in three to four years,” he said, adding that together the two airports will handle more than 140 million passengers. Puri proudly predicted that India would have 200 airports within two years, as compared to 100 currently. As of 2019, the pace of growth of air traffic had “slowed significantly”, according to International Air Transport Association (IATA). One of the reasons, according to the association, is poor economic activity.
It’s been a tumultuous year for the Indian economy. Q1FY20 GDP fell to its lowest in over five years and growth in Q2FY20 fell even further to 4.5%, making it the lowest in six and a half years. But, how did we get here? According to Puri, it all started with the financial crisis of 2008. “The subprime lending bubble in the US affected several nations including Europe and large parts of Asia, but we remained unaffected mostly because we weren’t sufficiently integrated in the global market,” said the minister and former diplomat. Today, we are. Also, the minister reminded the audience that no economy can grow in perpetuity. “We have seen expansive growth over the last 11 years and expecting it to be immune from the global scenario is wishful thinking,” he said.
Puri also said that he is “not sure if there is a slowdown in the automobile industry”. This remark had Pawan Goenka, MD of Mahindra and Mahindra, wondering out loud, during a later discussion, whether he had imagined the crisis. The industry believes this is the worst slowdown for the sector in over three decades. Hundreds of dealerships have shut down and tens of thousands of workers have been laid off. A liquidity crunch coupled with regulatory change has hurt auto sales, which has tumbled each month. Puri, however, attributed falling sales to increased use of public transport, with last-mile connectivity solutions, and rise in the use of taxi apps such as Ola and Uber. “If auto sales have fallen, metro ridership has increased. Industry experts are also divided on the question of this being a structural slowdown or something else,” he claimed.
However, there is no contesting the pain in the real-estate sector, the second largest employer after agriculture. Puri pegged this to the crumbling of the parallel economy that has been running in the country. Undeclared income that people kept in “gunny bags” was being used to buy up large land parcels, which created an artificial boom. When this cash was sucked out of the economy, after 2016 demonetisation, realtors had to leave their projects midway and this has left buyers in the lurch. “We are trying to deal with the aftermath of that situation and that’s why we brought in the Real Estate (Regulation and Development) Act. Many challenged it, but they were those people who were benefitting from the culture of impunity,” said Puri. He defended the regulation since it ensures good governance, greater transparency and accountability.
As the theme of the event was “Never Waste A Slowdown”, the minister urged business leaders and entrepreneurs to look at green shoots. He asked the leaders to understand what is causing the present crisis and to use the finding to correct their approach. “When somebody tells me there’s a slowdown, I ask them to give me a solution that can be executed without straining any other aspect of the economy,” he concluded.