The Estimates Committee of Parliament has recommended removing the cap in Foreign Direct Investment in the civil aviation sector.

A report of the committee on the sector, adopted in the last meeting, noted that such a cap is limiting the growth of aviation sector in India. Though adopted in the panel, the report is yet to be tabled in Parliament.

The committee in a detailed report on the “development and regulation of civil aviation” said the benefits of opening up the passenger airlines sector for investment by foreign airline companies are manifold.

“Apart from addressing the shortage of funds, this would help raise the level of services for the consumers and promote healthy competition,” the report said adding that FDI cannot be the “sole solution” to the Indian aviation sector's debt problems.

The report, prepared by the Estimates committee headed by Mr Francisco Sardinha, noted that the national carrier Air India and many private airlines are running on loss.

Taxes on air fares

The committee was “dismayed” at the fact that the taxes on air fares are quite high and are adversely impacting competitiveness of Indian carriers vis-à-vis foreign carriers. The committee urged the Civil Aviation Ministry to take up the matter with the Finance Ministry on priority basis and work towards “simplification” of the tax regime.

The committee noted that the aviation industry is “heavily burdened” with taxes and levies like sales tax on aviation turbine fuel, withholding tax on leased aircraft, high airport charges and levy of royalty, service tax on agency fees, expenses incurred abroad on loans raised and also services rendered and consumed abroad.

Safety mechanism

The committee asked the Directorate General of Civil Aviation to revisit the procedures and regulatory mechanism on safety thoroughly. Noting that 11 airports have been identified as critical airports, the committee urged DGCA to carry out surprise inspections at regular intervals to keep the system foolproof.

User Development Fee

The committee said though certain airports are levying UDF, no methodology has been prescribed in the Aircraft Rules for determining the fee.

The committee asked the Airports Economic Regulatory Authority to review the anomalies in collecting UDF and issue suitable directions to streamline the system.

On the Indian Airlines-Air India merger, the committee said the Government should have prepared a meticulous action plan before taking such a decision and hoped that the recommendations of Justice Dharmadhikari report on the merger would be considered by the Government.

(This article was published on April 15, 2012)
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