The latter is better as it creates more jobs in India
Not surprisingly, given the increased use of auctions as a means to allocate resources/rights to ensure there is no chance/allegation of favouritism, the Prime Minister’s Office (PMO), according to a report in Business Standard, is keen to auction bilateral flying rights for distances up to 5,000 km. Right now, the way it works is that India and, say, Qatar negotiate a number of seats that airlines from each country can fly into the other country—while Indian airlines are not using more than 30-40% of their bilateral flying rights, the Gulf carriers are using close to 100%. As a result, the only way to get more flights is to auction the unused Indian bilaterals. Given the deep pockets of Gulf carriers, Indian carriers are opposing the plan on grounds that, were all bilaterals to be auctioned, the Gulf carriers will be able to win the bid for all of them. That seems unlikely and, for instance, despite 100% FDI in telecom, Indian firms have more than held their own against foreign firms. While taking a call, the government will also have to keep in mind that what suits Indian carriers doesn’t have to be what suits Indian passengers—restricting the number of airlines flying suits Indian carriers while increasing the number is in the interest of passengers.
In an ideal situation, as was done for flights of more than 5,000 km, one option is to scrap all bilaterals which, in any case, were the result of protectionism in the 1940s when European airlines wanted to restrict competition from the US. In such a case, any Gulf airline—or Southeast Asian one for that matter—could bring in as many aircraft into India; Indians will get a lot more choice and, with greater connectivity to and from the country, tourism would also soar.
While it is not clear whether the government will agree to this since it rejected the proposal when the aviation policy was being recast, it will find it easier to take a decision by judging whether it creates fresh jobs. If bilaterals are to be auctioned and won by, say, a Qatar Airways, most of the jobs will get created in Qatar. But if the government stuck to the current form of bilaterals while allowing 100% FDI, this would mean a Qatar Airways would have to create a Qatar India in order to fly people out of India—immediately, the jobs would get created in India. Given about 120 jobs get created directly per plane—India has retained the 20 part of the 5/20 rule—this means Qatar India can fly overseas only after it has more than 20 planes and has created 2,400 jobs; once you include the indirect jobs as well, about 14,000 local jobs would have been created. Since it will create more flying capacity along with jobs, it seems better than the plan to just auction bilaterals.