Indian aviation takes off but growth weighs on airports

After a long rough patch, Indian aviation is finally booming, but that burst of growth is now taking a toll on the industry's infrastructure.

High operating costs, intense competition and the collapse of Kingfisher Airlines had weakened both business and civil sectors in previous years, but recently the Indian market has turned a corner into the world's fastest growing, largely thanks to supportive government policies.

Jet Airways planes
Prasad Gori / Hindustan Times / Getty Images

India is currently the sole bright spot in Asia's aviation sector, Neil Book, CEO at the largest independent aviation firm JSSI, told CNBC's "Squawk Box" on Wednesday.

Private jet sales are up and the emerging middle/upper classes have witnessed double-digit growth rates in travel, he explained.

The upper middle class made up 8 percent of the population in 2015, and is set to hit 12 percent by 2020, according to Boston Consulting Group. Meanwhile, the ultra-high net worth population--defined as those whose net worth exceeds $50 million--stood at 178,000 in 2016 and will increase 57 percent by 2021, estimates Credit Suisse.

Unlike his predecessors, Prime Minister Narendra Modi has loosened industry restrictions that are set to increase new aircraft deliveries as well as in-service and used business jets, Book continued.

Indeed, 2016 was a landmark year for Indian carriers as Modi unveiled a national civil aviation policy aimed at expanding air travel. Under the policy, domestic airlines are no longer required to log five years of domestic routes before getting an overseas permit, known as the 5/20 rule.

The government also said it would limit base fares on regional routes to 2,500 rupees ($37) per hour of travel in an attempt to make flying more viable for commercial passengers.

As strong economic fundamentals boosts air traffic, India may even overtake Japan this year to become the world's third largest domestic market behind the U.S. and China, the Centre of Aviation (CAPA) stated in a new report.

The Indian economy, post-demonetization

But the skies aren't entirely clear. The biggest risk to Indian aviation is the same one plaguing the national economy: creaky infrastructure.

"India faces the very real prospect of an airport capacity crisis," CAPA noted. "Slot constraints and congestion are key issues at most metro airports and are expected to remain so for the near term as new terminals and runways will take 2-3 years to develop."

The developments of new airports, such as the Navi Mumbai International Airport, have also been subject to lengthy delays, CAPA added.

Airspace is another potential concern on the supply side, with CAPA recommending that the air navigations services division of the Airports Authority of India be hived-off as a separate entity and corporatized.

If airports remain saturated, choking off air connectivity to India's centers of commerce, industry and tourism, the economic ramifications could be severe, CAPA warned.

—Follow CNBC International on Twitter and Facebook.