Column: Are we ready for take off?

Mar 24 2014, 03:29 IST
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SummaryIndia can become the largest aviation market but it needs lower taxes on ATF and no-frills airports to get there

India could become the third-largest aviation market by 2020 and the largest by 2030, as per the recently-released FICCI-KPMG India Aviation Report.

According to the report, India is blessed with a great geographic location, a large upwardly mobile middle-class and immense tourism opportunities. India is amongst the top 10 in the aviation world with a market size of around $16 billion. But this is just the proverbial tip of the iceberg, with nearly 99.5% of India’s population yet to see the insides of an aircraft.

The key issues include the industry’s low cost-competitiveness, excessive taxation, intrusive government control and inadequate regional connectivity. There is a widespread perception within the bureaucracy and the political class that aviation is a luxury service and hence deserves no special attention. What gives us optimism is that most of India’s challenges are related to policies, procedures, regulations, taxation and perceptions. These are man-made problems and, hence, surmountable.

The last few years have seen a series of far-reaching reforms. Global routes were opened to private Indian carriers, many leading Indian airports were privatised, FDI was permitted in Indian carriers, direct import of ATF was allowed, external commercial borrowing was permitted for airlines and maintenance repairs and overhaul (MRO), import duty on aircraft parts was abolished (up to one year from date of import), the Aircraft Acquisition Committee was abolished and 24x7 Customs operations were started at cargo terminals at leading airports.

In the recent past, the government has decided to allow entry of A380s, provide visa on arrival for tourists from many countries, corporatise Air Navigation Services , abolish the discriminatory 5/20 Rule, create an independent Civil Aviation Authority, etc. These are welcome developments. Some of these decisions need to be ratified by the Cabinet and Parliament and hence may require some more time. A lot more needs to be done.

Perhaps the biggest hindrance to growth is the high taxes on ATF. India sells one of the costliest ATF in the world, nearly 60% costlier than competing nations in the Middle East and ASEAN regions. ATF accounts for nearly half of the operating cost of Indian carriers. This is why a Delhi-Cochin or a Chennai-Srinagar flight ticket is, at times, costlier than a three day all-expense paid vacation in Thailand and Malaysia. No wonder, foreign tourist arrivals in India are an abysmal 7 million per year. Singapore gets 14 million, Malaysia 24 million and China 58

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