ETW Staff – Mumbai
The ministry of civil aviation has proposed an upfront subsidy to airlines by levying a two per cent fee on all domestic and international commercial flights in order to bring down the cost of air travel on non-metro routes. The proposed move, which could result in an increase in flight costs on trunk domestic air routes such as those connecting major metros as well as international routes, is aimed at bringing down the cost of air travel on non-metro routes to about Rs 2,500 per flying hour under a freshly conceived Regional Connectivity Scheme (RCS) that was unveiled recently in the revised draft civil aviation policy.
The subsidy will be funded through a two per cent levy on airfares for both domestic flights on trunk routes and on international commercial flights and is expected to generate Rs 1,500 crore per annum. R N Choubey, secretary, Civil Aviation, said, “The mandate from the prime minister was to bring out a policy which will make it possible for the masses to fly. That is the message which we set out to work with.” The policy will be put up for public consultations for a period of three weeks. A draft cabinet note would be framed thereafter and sent for inter-ministerial consultations. In another significant initiative in the draft policy, the ministry said that it is looking at liberalising the bilateral regime by permitting open skies between India and SAARC nations and countries beyond 5,000 km radius of Delhi. Post-April 2020, open skies arrangement with countries within 5,000 km radius will be considered along with a proposal to allow FDI in Indian carriers over the current 49 per cent. The draft policy proposes to abolish service tax on MRO (maintenance, repair, overhaul) services provided in India and allows increase in tax-free period for storage of spares imported by MROs.
As per the draft policy, the government will provide viability gap funding (VGF) to airlines flying to underserved and unserved destinations to keep airfares at about Rs 2,500 per flying hour on regional routes. The VGF will be indexed to aviation turbine fuel (ATF) prices and to inflation. While the Centre would provide 80 per cent of the resources to bridge losses incurred by airlines by flying to these routes, the remaining amount would have to be pitched in by the states. There will be no service tax on tickets on regional flights.
The proposed subsidies for enhancing air connectivity would, however, be only offered in states which reduce VAT on ATF to one per cent or less at RCS airports. “States are currently not collecting any tax at RCS airports because there are no flights to these destinations. If they reduce VAT on ATF at these airports, they would be earning to the extent connectivity improves to that location,” said Choubey. The policy proposes to develop no-frills airports at around 400 unused air strips across the country at estimated cost of around Rs 50 crore each for supporting flights to unconnected destinations. The push for air travel proposed under the regional connectivity scheme is expected to boost domestic air traffic to 300 million by 2022 from 70 million now. Domestic air ticketing is expected to go up further to 500 million by 2027.