Volatility in fuel prices, high tax on aviation fuel hurting sector

A strong market growth rate, coupled with infrastructure expansion, will help the Indian civil aviation sector get back on its wings as the economy recovers, according to a FICCI-PwC report.

Indian civil aviation sector has continued to experience high passenger growth (domestic traffic CAGR is 17 per cent from 2009 to 2011), and if the trend continues, it could rank among the top three aviation markets in the world by 2020, the report added.

Foreign Investment

However, volatility in fuel prices, combined with high tax on aviation turbine fuel and other national policy-related issues, continue to challenge the sector’s growth, the report said. The recent increase of FDI up to 49 per cent in civil aviation might also not result in substantial increase in investment, since it has been imposed on the aggregate of FDI and FII.

The report also recommends a hike to the 26 per cent cap on FDI in defence, as it has failed to attract foreign investment. India has received only $ 4 million in the past 10 years since FDI was allowed in the defence sector, while the entire economy has received over $180 billion.

According to the FICCI-PwC report, India’s military aviation sector needs better access to technology, funding, and the Government needs to rationalise the tax and regulatory framework to keep pace with their global counterparts. The report stated that the medium and long-term perspective plans should be shared with industry in a transparent manner, without compromising on national security. This will provide the industry information and confidence to invest in a production process that is measured in decades than years.

Dhiraj Mathur, Leader, Aerospace and Defence, PwC India, said, “In the last five years, there have been significant investments by large and small domestic companies that has entered the aerospace and defence industry. However, the FDI inflow has been very low. India’s acquisition programme and its offset policy can potentially generate investments in excess of $20 billion along with creating massive employment for skilled and professional manpower. The Government should strive to make the Indian industry an integral part of the global aerospace and defence supply chain.”

nivedita.ganguly@thehindu.co.in

(This article was published on February 7, 2013)
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