The Hindu Business Line : Naresh Chandra flight plan

IF THE DOMESTIC airline industry is in a crisis, airlines are all running up huge losses, and growth in passenger traffic is not as fast it ought to be, blame it all on Government policy. The Naresh Chandra Committee, set up to provide inputs for a new civil aviation policy, has come up with sweeping recommendations designed to change the character of the domestic skies. Saying that air travel is no longer just for the elite and the rich, and therefore must be seen not as a milch cow, the panel has called for a sharp cut in government levies and charges, on the one hand, and for a larger role for private capital and initiative, on the other. The change in emphasis can hardly be faulted.

One of the largest elements of cost for an airline in India is fuel. That is because the price paid by domestic airlines is almost 50 per cent more that by international airlines. The unfortunate anomaly arises on two counts: One, government companies control supplies at airports and set prices monopolistically, and two, both the Centre and the States levy crushing taxes (an average of 45 per cent) on the already inflated price. The panel wants airlines given relief on both counts: The freedom to source fuel from the cheapest sources by ending monopolies in supply, and the reduction in levies, including sales tax to four per cent. A drastic cut in the inland air passenger tax — a relic of the 1990 Gulf War that now fetches over Rs 1,000 crore a year — and in the various airport-related charges said to be way over international levels has also been strongly advised.

No doubt these measures are in the right direction and will be appreciated greatly by fliers when they see their ticket prices decline. But in essence they call for a transfer of substantial resources from government. If that is a minor sacrifice for the Centre, the deep cut in sales tax could have major repercussions for revenue generation for the States, as the loss cannot conceivably be made up by higher growth in traffic in the near term. Yet the trade off is worthwhile, says the panel, because one new job created in the aviation sector begets ten new jobs in the rest of the economy. The proposition is tempting; Andhra Pradesh is one State that bought the logic recently and dropped sales tax on fuel to four per cent, but will other States see light?

Also controversial will be the advice to allow foreign airlines 49 per cent stake in domestic airlines. Few countries have admitted foreign airlines into their domestic skies in the past; but that regime has begun to yield, notably in Australia. The question is not whether India needs foreign expertise in running an airline — the private airlines here have indeed set some notable benchmarks in service — but whether credible investors can be found locally to buy into Air India and Indian Airlines when they rightly do get privatised. In that context the loosening of strings is valid. Yet, when the Government and Parliament sit to sketch a new aviation policy, the many vested interests will do their best to halt the changes. It will be interesting to see how many of these recommendations survive the acid test of democratic policy making.

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