The Hindu Business Line : A pep to air travel

IT IS FUNNY how a tax sticks on to the statute books even after it becomes out of date or irrelevant. The Inland Air Travel Tax is an example of an impost that should not have been around this decade. It had been imposed as a fuel surcharge during the 1990 Gulf War and the unprecedented increase in crude oil prices. That war ended in March 1991 and oil prices reverted to normal levels; yet for more than a decade, the Government had not thought it right to give up on the tax that brought around Rs 1,000 crore a year to the kitty. Recognising this tendency of governments, the Naresh Chandra Committee, which recently presented its report on a road map for the civil aviation sector, did not recommend the abolition of the IATT. It merely asked for its reduction from 15 per cent to 5 per cent. Mr Jaswant Singh surprised everyone by going beyond that and erasing the tax altogether.

Evidently, the Finance Minister was in an expansive pre-election mood last week and air passengers should perhaps count themselves extremely lucky they were in his sights just at the right time. With the tax gone and with competition among the airlines hot in many routes, domestic fares have dropped to levels they were several years ago. The discounted apex fares are pointedly lower than even the premium train fares. Air travel has been pulled down from the elite shelf that successive governments had condemned it to.

It now remains for State Governments to complete the rescue. Sales tax on aviation turbine fuel is 25 per cent on the average, with Kerala setting it as high as 39 per cent. The combined effect of the high excise and sales tax made the fuel twice as expensive as it is overseas. Mr Jaswant Singh has tried to correct that by halving the excise duty to 8 per cent. States need to take the cue from him. One cannot expect all of them to have the guts to slash it to 4 per cent, as Andhra Pradesh has done, and lose revenue in the initial period, but they must seriously work on a phased reduction in the tax.

States must recognise the larger issue here: that air travel has to be affordable if tourism and business are to thrive and create employment. India figures pretty low on the global tourism charts, attracting barely 0.3 per cent of the world's tourists. Its economy, therefore, does not win the advantages that a vibrant tourism industry confers. On the average, tourism accounts for 10.5 per cent of the GDP of all nations; it makes up just 4.8 per cent of India's. The International Civil Aviation Organisation claims that for every 100 jobs created in the aviation sector there are over 600 jobs created economy-wide. This multiplier, ignored in the past by governments for short-term revenue gain, is finally getting the recognition it deserves. The old mindset is changing. Finally, what can keep fares low is continued competition. The presence of four mainstream domestic airlines — Indian Airlines, Alliance Air, Jet Airways and Sahara Airways — has made for reasonably healthy competition and they have been nudged in recent weeks by the no-frills start-up Air Deccan. Every effort must be made to keep the competition pot boiling.

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