Will Budget 2012 ease Aviation sector's woes?

Posted By: Religare
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Will Budget 2012 ease Aviation sector's woes?
India's struggling aviation industry, mired in huge losses and a mounting debt burden, is pinning hopes on the Union Government to provide some tax incentives and relax FDI norms in the upcoming budget to ease its financial woes.

Growing at an annual compound rate of 18 per cent, India's aviation industry has witnessed a high passenger and cargo growth rate; however the sector has been hit by burgeoning operating costs and a ballooning debt pile of over USD 15 billion.

The cash strapped industry is urging the government to grant 'infrastructure status' to the sector, which may help it to garner additional tax sops.

It is desperately seeking an easing in FDI norms in the sector as allowing investment by foreign airlines in Indian carriers may ease the cash crunch for private airlines.

Foreign capital will help airlines meet capital expenditure including crucial maintenance costs and improve the cost efficiency ratio of Indian carriers. Pushing more foreign investment in the sector may also upgrade India's airport infrastructure.

A major reason for the industry's dismal performance in the last few years is a rise in operating costs owing to the hike in Aviation Turbine Fuel (ATF) prices that has seen Indian carriers operate at cost levels among the highest in the world.

While the industry welcomed the government's decision to allow direct import of ATF by Indian carriers, granting ATF under the 'declared good' status would be a big boon for the aviation industry as it may lower its sales tax incidence. ATF currently accounts for 30 to 40 per cent of operating cost of Indian carriers.

While the government may offer a helping hand to beleaguered airlines in the upcoming budget, the massive debt pile of USD 15 billion suggests a quick fix to the sector's financial woes is far away.

Read more about: union budget 2012, fdi, aviation
Story first published: Tuesday, March 13, 2012, 13:30 [IST]
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