India is expected to be amongst the top five globally in the next 10 years in the aviation sector. But Today Indian Aviation future is some what looks bleak given the current uncertainty in addressing the issues suffered by aviation industry. Budget 2012 has tried to address some of the issues but more will be welcomed in coming days and months. Our Aviation expert looks in to various issues including budgetary proposals.
Increase in Service Tax : Rate of Service tax has been elevated from 10% to 12%. This in turn will result in costlier airfares for fliers and will have negative impact.
ECB Boost : Airliners are allowed to borrow via External Commercial Borrowings (ECB) route up to $1 billion for working capital requirements, besides this withholding tax on interest payments on ECB proposed to be reduced from 20% to 5% for three years. This will certainly ease liquidity situation to a great extent and reduction in withholding tax will reduce their interest burden. Troubled airliner KFA will get benefit due to said move.
Exemption of Custom duty : Budget has proposed an exemption in custom duty for imports of certain parts, testing equipment, for repair, maintenance, and operations services.
Direct Import of ATF : FM has again encouraged airlines to directly import ATF for their individual airlines in his recent budget. It is to be noted that DGFT allowing individual domestic airlines to directly import aviation turbine fuel (ATF) by issuing a formal notification to this effect. Some domestic airlines like Kingfisher which is presently reeling under heavy financial crises has applied for permission to import ATF.
The airlines importing fuel may stand to gain from this offer as this may overall bring down the operating cost, as many experts are of the opinion that the cost may work out to as high as 50%.
However, storage facility of ATF is a big question mark as adequate private storage facilities are still not available in India at various location.
Refueling to Individual Oil Company : Government is also debating on offering various domestic and international airports across India to individual oil companies to avoid infighting and futile competition among oil companies. Presently, at Metros and other cities, all three oil companies like IOC, HPCL, BPCL compete with each other to offer their refueling services. Relocating working staff / labour problems is one of the hurdle faced by oil company which is yet to be finalised.
Besides issues listed above government need to revisit areas such as Financial Restructuring of Air India, addressing trade unions and to bring strategic investor and FDI in aviation. It would be commendable if aviation minister able to sail Indian aviation industry through a perfect storm.
(Views expressed in the article are personal view of Mr. Vijay Pulawar. he can be reached at pavijay@tegfr.in)
