The Government is working on a comprehensive package for the airline industry. This will also include relaxation of norms for Foreign Direct Investment (FDI) in domestic airlines.

A senior Government official told Business Line, “The Cabinet is likely to consider a comprehensive package immediately after the Presidential election. This package is being prepared in consultation with the Ministries of Civil Aviation, Petroleum and Finance, Department of Industrial Policy and Promotion (DIPP) among others” The Presidential election will be over with the counting of votes, scheduled for July 21.

Equity stake

The highlight of the package will be allowing foreign airlines to pick up equity in domestic scheduled airlines. At present, though FDI up to 49 per cent is allowed, foreign airlines cannot pick up equity either directly or indirectly. The expected change in policy may remove this restriction.

A senior DIPP official claimed that the consultation on FDI in the domestic aviation sector is almost complete. The official, however, refused to comment on whether political opposition had been sorted out or not. DIPP is the nodal wing for the FDI issue. Earlier, there were differences in the Government on whether to allow 26 per cent or 49 per cent. Then regulatory issues followed. And finally, when these issues were resolved, alleged opposition from the UPA ally Trinamool Congress (TMC) delayed a decision on the proposal.

The second important issue the package is likely to deal with is jet fuel. A senior Government official said the option of moving aviation turbine fuel to a specific rate of taxation from ad valorem is being considered. This is because declaring aviation turbine fuel a ‘Declared Goods’ might not find favour with States.

A product brought under ‘Declared Goods’ category attracts lower and uniform duty of 4 per cent in all States. At present, the sales tax on ATF in various states ranges from 4-30 per cent. At the same time, levying duty at a specific rate will not raise the total tax component in case the crude prices rise. Currently, whenever the price rises, airlines face a double whammy as both the tax component at the Central and State level rise.

Apart from these two issues, there may be some provisions for making Delhi and Chennai hubs. The Prime Minister, while setting the targets for infrastructure sector for 2012-13, has already talked about such a move.

Heavy losses

These measures are important at a time when, barring one, all scheduled domestic airlines are facing heavy losses. The report of the working group on Civil Aviation for the formulation of 12{+t}{+h} Five Year Plan states that airlines in India have a debt burden of $20 billion (estimated for 2011-12). Indian carriers, during the period between April 1, 2007 and March 31, 2010, are reported to have incurred an accumulated operational loss in excess of Rs 26,000 crore, of which three large airlines accounted for nearly Rs 23,000 crore.

(This article was published on July 11, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.