Mega aviation package to cut levies, ease rules in the works

The Union government is working on a comprehensive package for the aviation sector involving lower user fees, relaxed regulations and tax concessions, three government officials aware of the development said.

Federal think tank Niti Aayog is leading the initiative, holding consultations with the ministries of aviation, commerce, finance, home, petroleum and environment for the package, the people cited above said on the condition of anonymity.

While the civil aviation ministry is focused on regulatory relaxations and route allocation, the commerce ministry will work to align the package with India’s trade goals and encourage foreign investment. The finance ministry will examine tax concessions, particularly on aviation turbine fuel (ATF), while the petroleum ministry will work with states to rationalize value-added tax.

Meanwhile, the environment ministry will ensure sustainability norms, and the home ministry will work on efficient immigration and security protocols. State governments are expected to support regional airport development, the people cited above added.

“An official announcement is expected in the coming months, with Niti Aayog tasked with providing policy guidance for ensuring economic viability. Several rounds of inter-ministerial discussions on the matter have been held, and another round of dialogues is being planned in the coming months,” one of the three officials said.

Other proposals under consideration include minimizing procedural delays in permitting new airlines, aircraft acquisition, route additions and easing restrictions on hiring foreign pilots. Easier norms on digital ticketing, security checks and customer services to improve passenger convenience are also likely.

Also read | Ease of doing business: Government in talks with industry stakeholders to ease air cargo processes, boost volumes

India is the world's third-largest domestic aviation market, behind the US and China. Ratings agency Icra projects India's domestic air passenger traffic in FY25 to grow by 8-13%, reaching 165-170 million. Meanwhile, international passenger traffic is set to surpass the FY19 peak in the current fiscal year.

Mint reported earlier that the Centre is working on a plan to reduce ATF prices to compete with global hubs. ATF is not under the goods and services regime, meaning states are free to tax them. ATF prices in India are nearly 60% costlier than in Dubai, Singapore and Kuala Lumpur.

Since ATF costs make up almost 40% of airlines' operating costs, reducing their prices would be a significant breather for airlines, helping them bring down fares and raise air traffic. That dovetails with the government’s objective of growing India’s aviation sector by adding airports, pushing local manufacturing, and developing repair hubs.

"The other key components of the package will be reduced user charges, route optimization, and regulatory relaxations. The rationalization of ATF prices is a key component of this package. Consultations are underway with states and oil marketing companies to align prices, as our current rates still exceed global trends,” the second official said.

Experts said that India’s aviation sector holds immense potential, but is held back by constraints including those which are regulatory in nature.

“Rising user charges can drag down profit margins of airlines. With the Airports Economic Regulatory Authority (AERA) mandating charges for airports, airlines are not directly involved, but they are impacted in terms of margins due to increased user charges," added Ameya Joshi, an independent aviation analyst.

Also read | Two years on, global aviation yet to recover from covid as supply chain bottlenecks persist

User charges include fees charged by airports to flyers for using airport equipment such as metal detectors and baggage screening. These include user development fee (UDF) and passenger service fee (PSF), which are different for different airports, and are regulated by AERA.

For instance, AERA raised the UDF for the services at Jaipur International Airport Ltd (JAIL) from ₹394 per person departing to ₹805 in August this year, to finance the airport's modernization plans. These fees are also different for domestic and international travel.

Industry stakeholders remain hopeful about the upcoming changes.

“India's aviation sector is undergoing a remarkable transformation," said Indiver Rastogi, president & group head, global business travel, Thomas Cook (India) and SOTC Travel. Indian airlines' fleet size has doubled to 800 in 10 years while domestic passenger traffic has jumped from 67 million to 152 million in the same period. “The ambitious expansion plans of airlines such as Air India and IndiGo, which includes the delivery of 150 additional wide-body aircraft by FY35 and further additions of A321 XLRs for medium-haul routes, are set to boost connectivity further,” Rastogi added.

Queries emailed on Tuesday to spokespersons of Niti Aayog, and the ministries of aviation, commerce, finance, petroleum, home and environment remained unanswered.

"Indian airlines face the brunt of high ATF costs. About 35-40% of all costs are linked to ATF for airlines in India. Many states have already reduced taxes, but the uneven taxation hurts. There has been a long-pending demand to have ATF under GST. Any taxation relief will be helpful for the industry," Joshi added.

And read | Foreign pilots might get to ride India's aviation boom for another year