Saturday, January 09, 2021

Structural reforms to continue in aviation

The Indian aviation industry’s capacity and passenger growth have been significantly impacted since the COVID-19 pandemic. The industry’s financial woes have been only accentuated by the pandemic. The deteriorating financial health of the industry has raised expectations of tax sops to help reduce their high cost and debt burden, especially lowering taxes on aviation turbine fuel (ATF), which comprises 30-40 percent of the total cost of an airline, and the prices of which are 45-50 percent higher in India, compared to international prices. The industry also requires aid in terms of reduction in other levies, which include among others, airport charges, parking and landing and navigation charges. Furthermore, since the airlines have to currently follow a fare band as per the directives of the Ministry of Civil Aviation (MoCA), which is constraining their ability to charge higher fares, they want relaxations in terms of the fares they can charge.

The government is expected to reiterate its focus on improving regional connectivity through its Regional Connectivity Scheme (RCS) or UDAN (Ude Desh ka Aam Nagrik) and making flying affordable to the masses by providing a favourable eco-system. With continued thrust of the government on infrastructure creation and development, the Budget is likely to focus on upgradation of airports in Tier 2 cities through the public-private-partnership (PPP) route. Furthermore, reiteration of the focus on setting up new airports and expansion of existing airport capacities at some key airports to help address the current airport infrastructure constraints faced by the airlines, and to improve connectivity with the underserved / unserved airports and thus boost tourism, would help.

There could also be some focus on the maintenance repair overhaul (MRO) sector. In line with the government’s increasing thrust on Atmanirbhar or Make in India scheme, the Budget could focus on incentivising the MRO sector to retain the MRO activities in the country.

The Budget is also expected to prioritise the privatisation of Air India Limited, which has been facing roadblocks over the last several months.

09/01/21 Kinjal Shah/

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