The Indian government plans to enact a new civil aviation policy within the next five months to boost investment and cater to the infrastructure needs of the fast-growing sector, and at the same time is working on a new economic regulatory mechanism for monitoring, but not setting, air fares.

Civil Aviation Secretary S. Nasim Zaidi says the new aviation policy will focus on attracting more private sector investment into the ailing industry and improving the cost viability for the stakeholders. It will also look at establishing a promotion board for air cargo.

“We have decided to frame a new civil aviation policy that will help meet the challenges of the next decade. It will look into issues of sustainability, viability and human resource of the sector,” Zaidi says.

India’s airline industry is flying through a turbulent phase, and carriers have attributed their mounting losses to tickets priced below cost. The proposed regulatory mechanism is significant because in recent months private airlines have accused state-run Air India of charging extremely low fares to show improved load factors.

“It [pricing of air ticket] is the thrust area,” Zaidi says. “The economic mechanism will look into the issues of legality of changes in fares, but it will not regulate the airfares or fix the tariff,” he says.

Losses are mounting at Air India and Kingfisher, and the sector overall is under huge pressure from high fuel prices and taxation. Carriers are reporting losses despite passenger traffic increases.

The ministry, in response to a letter from the prime minister’s office asking it to examine the fuel tax regime, plans to propose a set of recommendations to ease taxes on jet fuel.

According to the Associated Chambers of Commerce and Industry of India, the air cargo industry is averaging annual growth of 12%, while GDP has been growing at nearly 8%.

Indian airports handled a total of 2.33 million tons of cargo in 2010-2011, up from 0.5 million tons in 2005-2006. While domestic cargo is expected to increase from 0.8 million tons to 1.7 million tons by 2016-2017, international cargo traffic is projected to move up from 1.5 million tons to 2.7 million tons during the same period.

Zaidi says the air freight stations at Mumbai and Chennai will become functional soon to keep up with the booming traffic.

He says the ministry is also looking at reforming customs procedures, saying faster clearance of cargo is essential to maintaining high growth rates.

“India has the potential to emerge as a global trans-shipment hub,” he says.