Forecasting investment and capacity addition in Indian airport infrastructure: Analysis from post-privatization and post-economic regulation era

Indian economy has been on the high growth trajectory for last two and half decades and it is expected to remain a high growth economy for few more decades given the favorable demographic structure and macroeconomic fundamentals. As the per capita income increases in an open economy, the opportunity cost of time consumed for travelling goes up, thereby, the demand for civil aviation increases. Indian economy is no exception as the middle class population, which has been progressively increasing, is opting for safe and less time consuming air travel. The same is true for transportation of high value-added products thorough air freight. In this context, the aim of this study is to forecast air traffic, capacity addition and investment required for capacity expansion in Indian civil aviation sector for next 20 years. In order to achieve this, we have collected last 20 years’ data on air traffic, Gross Domestic Product (GDP) and Index of Industrial Production (IIP) from Airport Authority of India (AAI), World Bank website and India STAT website respectively. This data has been used to work out GDP and IIP elasticity of traffic. Using these elasticities, air traffic has been projected for next 20 years, which has been used to forecast required capacity additions and investment. In a nutshell, the findings of this study are that in next 20 years 866 million passenger terminal capacity and 7.53 thousand Metric Tons (MT) cargo terminal capacities will be required at the investment of about US$ 25.94 billion.