A coordinated approach across ministries and lower taxation is needed to resuscitate India’s aviation industry, says IATA chief

Tony Tyler is Director General and CEO of International Air Transport Association (IATA) that seeks to increase awareness on the benefits that aviation brings to national and global economies. Its members comprise around 240 airlines worldwide. Mr. Tyler speaks to The Hindu on the pros and cons of the taxation policy for India’s aviation industry. Excerpts from the interview:

Aviation is a backbone of today’s global economy and it is a great contributor to India’s GDP also. Given this scenario, what changes would you like to see in the taxation policy for India's aviation industry to enable it to achieve its growth potential?

Aviation can deliver the greatest value to national coffers by facilitating business that expands the tax base. Unfortunately, many Indian ministries see aviation as a tax revenue source in itself, rather than as a revenue generator. This approach short-changes the positive impact that aviation can bring to Indian economic development. Look at how aviation is taxed. At one level, the Ministry of Finance imposes a service tax on air tickets, landing and navigation charges. This contravenes International Civil Aviation Organization (ICAO) policies, which India as a long-standing ICAO Council member helped to set. Even more damaging to India’s airlines are the taxes on domestic fuel that can add an additional 30 per cent to the fuel bill. On top of that is an excise duty of 8.2 per cent. It is no wonder that for Indian airlines, fuel is about 45 per cent of total operating costs, compared to a global average of 33 per cent.

The country’s Commerce Ministry wants to increase India’s exports to $500 billion by 2013-14 — double the 2010-11 level. The Tourism Ministry is targeting 10 million tourists by 2017 — nearly double the 5.7 million arrivals expected this year. Reducing the tax burden on connectivity will be a critical element of success for both these efforts. More competitive business travel costs, more cost-efficient shipping and a warmer welcome for 90 per cent of India’s international tourists who arrive by air will go far to achieving these goals. What is needed is a coordinated approach across ministries and levels of the government.

Regulation that increases safety or enhances competitiveness is good; however, at times, best intended regulation can also have unintended and damaging consequences. In the same light, what regulations / policy changes do you feel will help the Indian aviation sector grow?

The success of Indian aviation is inter-related with India’s economic success. Increasing access to capital, building infrastructure, ensuring a cost-efficient operating structure and creating a tax regime focused on growth form the basis of an agenda to improve the competitiveness of Indian aviation and drive broad economic and social benefits. But there will be no success if policies are not coordinated — or even worse — if they work at cross purposes. Aviation is the responsibility of the Ministry of Civil Aviation (MOCA). Indeed, MOCA has done much to improve Indian aviation’s prospects. But success needs a broader framework involving the coordinated efforts of the Ministries of Finance, Tourism, Commerce, Environment and others.

IATA has strongly opposed 346 per cent hike at Delhi IGI airport, making it among the world’s most expensive airports. Have the Indian regulators failed to protect public interest by approving this hike. Also DIAL stated that IATA’s calculations made in this case are wrong. Your comment.

How Delhi ranks among the world’s airports has been the topic of much discussion. Its ranking is not my concern. Its long-term success, however, is a concern for many of my members — especially those operating in India. Cost-efficiency is a critical component of any airport’s success. The proposed increase will add over $400 million in costs which will have to be borne by both the passengers and the airlines. That’s a big number for any market to absorb overnight. Any business that increases prices ahead of what the market can bear can expect demand to soften.

Our estimate is that an increase of this magnitude will impact travel demand by five to seven per cent. That’s bad for airlines, for passengers, for Delhi International Airport Private Limited (DIAL), for the Delhi hub, for Delhi as a city and indeed for India as a whole. The urgent short-term discussion we should be having is about how to make Delhi a more competitive airport, a successful hub and a major driver of economic growth for the city and the entire sub-continent. I urge the government to initiate deliberations on utilising at least some of the 46 per cent concession fee to offset the increase in aeronautical charges and the cost for passengers.

ADF (Airport Development Fee) is another bone of contention. What is IATA’s opinion on this?

We are opposed to the ADF where it serves as a pre-financing scheme. This is the case for Mumbai, where the airport is still under construction and passengers are made to pay for facilities that they are not using. If you build a toll-bridge, you don’t charge users until the bridge is completed. The same principle is accepted internationally for the development of airport infrastructure. For Delhi, where the facilities are in full operation, the ADF functions as an additional passenger fee for using the airport facilities. There are two concerns with Delhi’s ADF: the difference in the ADF for international and domestic departing passengers is unjustifiably large as compared to the applicable User Development Fee and that substantive ADF when lumped with the 346 per cent increase in other costs at Delhi will make the overall cost even more unbearable for the industry and its passengers.

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