The aviation industry continues to ride on the achievements of the NDA government
Flying low
By Rajiv Pratap Rudy

Modern Day reforms stress on strengthening and building infrastructure, an issue on which some good sound bites have come from Finance Minister P Chidambaram. It's time to see if this year's budget has anything worthwhile on one of the core areas of infrastructure--aviation. While doing so, taking stock of the reforms initiated during the NDA's rule, along with a comparison, would not be out of place. To recall, the initiative began with a cabinet nod for the privatisation and modernisation of Mumbai and Delhi airports, along with the appointment of a financial consultant and global technical advisor to invite international bids. Approval was given to the private sector for two greenfield airports - at Shamshabad in Hyderabad and Devanahalli near Bangalore - as well as for the modernisation of 25 non-metro airports. This was followed by permission to private domestic airlines to fly to Saarc countries.

On the price side, landmark decisions were taken by Jaswant Singh to abolish Inland Air Travel Tax and Foreign Travel Tax and lower central excise duty on aviation fuel from 16 per cent to 8 per cent. The latter was a pre budget decision, prompting airlines to reduce prices and increase affordability of air travel. This marked the beginning of the era of low cost airlines, starting with Deccan Airways, and others like Kingfisher, Indus, Air One and Royal Air queuing to take off. However, constraints for low cost air lines came from the paucity of parking bays, maintenance hangars, taxi tracks and space for passenger facilitation. The unacceptable landing charges levied by Airport Authority of India was rationalised to comparable international levels, including waiving landing charges for helicopters and small aircraft with seating capacity of less than 80 people.

The budget reveals no provision for any new airport infrastructure, except for establishing a new flying academy at Gondia in Maharastra - this is the minister's constituency and does deserve this privilege.

There was also a significant decision to revise navigational charges to a 'distance flown' concept. This substituted the flat rate levied earlier, which was hurting short haul commercial operations.

The custom duty on import of aircraft was scaled down much earlier. The constitution and recommendations of the Naresh Chandra Committee facilitated the aviation reforms initiatives. Undoubtedly, the fiscal incentives introduced by the NDA regime resulted in a complete turnaround, raising domestic and international traffic by 24.7 per cent and 18 per cent respectively, compared to the last calendar year. Capping sales tax at four per cent for all turbo prop aircraft triggered remarkable connectivity with the North east. National carriers gained a major financial turnaround when they were allowed to purchase aviation fuel at global prices for their international operations.

The revised charter policy permitting travel operators to choose destinations with reciprocal rights to ferry Indian tourists abroad in the ratio of 2:1 resulted in throw away ticket prices for major European destinations and enhancing of foreign tourist flow to beach destinations like Goa. The limited open sky policy during peak season eased capacity pressure and offered abundant availability of seats on the international sector. Introduction of passenger friendly services and spacious security check corridors at airports, removal of the archaic regulation prohibiting photography at terminals, relaxing of prohibitive rules on cell phone use inside the aircraft while on ground and permitting advertising on the surface of aircraft as a major revenue earner for commercial operators were small but perceptible changes.

While applauding my successor, what intrigues me most is the finance minister's indifference towards the aviation industry. The only reference in the budget is yet another postponement of the withholding of tax announced last year - that is, the exemption from tax on agreements to acquire aircraft or aircraft engines on lease - to September 30, 2005. Surprisingly, Chidambaram had himself done away with this provision in 1996 as finance minister in the United Front government. One fails to comprehend what prompted him to introduce it again.

A close scrutiny of the budget fails to reveal any financial enhancement of the token provision made by the NDA government for fleet acquisition of Indian Airlines or Air India. Undoubtedly, private airlines benefit from the postponement of the withholding of tax as their fleet augmentation plans are expedited far too swiftly. Chidambaram fails to appreciate that the fleet acquisition plans of government owned airlines have not yet crossed the hurdle of the pre- investment board. Assuming the government succeeds in placing firm orders by the year end, which seems quite improbable, the first aircraft would be inducted not before 2008 and the last in series by 2016. The induction is mainly for the replacement of existing aircraft and little for augmentation of the fleet. The budget reveals no provision for any new airport infrastructure, except for establishing a new flying academy at Gondia in Maharastra - this is the minister's constituency and does deserve this privilege.

The announcement of the SPV, with a corpus sum of Rs 10,000 crore as the outer borrowing limit to take care of all infrastructure projects of roads, ports, airports and tourism lacks direction, vision and clarity. Chidambaram did say that Mumbai was becoming the financial capital, but fails to appreciate that major financial capitals in the world - New York, Singapore or London have strong supportive infrastructure. The John F Kennedy, Changi and Heathrow airports have been a major hub of world traffic for years now. Dubai and Colombo are established as major hubs at our doorsteps, poaching huge traffic outflows and routing them to major European and US destinations. Nothing in the budget addresses Mumbai's infrastructure concerns, except an old government ploy recommending the constitution of a high powered expert committee. It would be apt to state that good sound bites don't establish financial capitals; it requires practical and real initiatives.

The much awaited expansion of the bilateral with Britain and a modest effort to open the sky to the US do scare us since the exhausted capacity of our airports may not be able to withstand additional inflows. The future of the Mumbai and Delhi airports remains uncertain with the Left seeing red on its privatisation plans. The increase in FDI limits on air transport services domestic airlines up to 49 per cent through automatic route and up to 100 per cent by NRIs through automatic route with no direct or indirect equity participation by foreign airlines is suspect. The imposition of tax on fringe benefits would agitate the operational crew 01 all airlines. A conservative estimate of the impact of the fringe benefits tax on the Indian Airlines is around Rs 130 crore.

While the world sees Aviation 2005 as destination India, it seems, the aviation industry continues to ride on the achievements of the previous government. To conclude, it reminds me of what Chidambaram had to during his last budget: 'Main hoon na.' This time, it seems more like 'main hoon kahan?'.

(The writer is a former Union Minister of Civil Aviation)