Home / Opinion / Views /  Jettison legacy taxation to propel civil aviation

Indian civil aviation has undergone epic turbulence as a sector these past few years. The dust had barely settled on a shake-out from our skies when a covid fright froze all flights. Getting airborne again has had breaths held back, not just of airline chiefs watching volatile costs, but also of fliers who have lately seen airfares soar. When will we be able to unfasten seat-belts and breathe easy again? Union civil aviation minister Jyotiraditya Scindia told Mint in an interview that India’s government is ready to ease rules that stand in the way of quick capacity expansion by airlines. For example, the ministry plans to let carriers wet-lease aircraft for an entire year instead of six months (on a case-by-case basis). Since such planes come with crew and support engineers, their speedy deployment can help airlines increase the seats offered on crowded routes. Domestic demand since early 2020 has fallen and risen in waves, but is currently back at around 400,000 daily passengers. In October 2022, Indian airlines carried 11.4 million fliers, about 10% more than in September and up 27% from a year earlier. This is still some 8% below the pre-covid figure for October 2019. But then, as price charts reveal, aviation capacity has not kept pace with traffic.

Airline managers have had much to sweat over. Earlier this year, hostilities in Europe joined a weak rupee to push up already-high fuel costs, even as the supply of new aircraft, spare parts and other needs was hindered by global supply-chain hiccups. This pressured financial readings, with bottom lines staying mostly in the red. The hope was that significant switches of ownership would provide the sector with fresh wind. Air India, now in Tata hands, is to be merged with Vistara by March 2024, and so the shift may take long to impact the market. Meanwhile, even as top-player Indigo looks overseas in anticipation of renewed rivalry within the country, Akasa Air is taking longer than expected to take off and the revival of Jet Airways, which exited a year before the pandemic, has got clouded with uncertainty. Jet had got the Centre’s nod to start flights in May, but differences arose between its creditors and new owners. Lenders and the Jalan-Kalrock consortium have both pointed fingers at each other for allegedly failing to fulfil the rescue plan approved under India’s insolvency code. That this should happen so long after Jet’s bankruptcy was ‘resolved’ is inexplicable.

While fliers recount the good old days of a well-contested market and wait for lower fares and better services, the Centre should act now to compress the sector’s inflated operational costs. While a recent drop in global oil prices should lower jet-fuel bills, which had risen almost by half since last November, what the sector really needs is tax relief. Aviation turbine fuel should be under the ambit of GST. This is a decision that Scindia indicated is for the GST Council to take, with state-level snips in value-added tax—some of which have happened—the best that carriers can expect till then. Overtaxed petroleum products in India have always been revenue ploys rather than carbon-control measures. These have distorted the cost base of too many sectors, aviation included, and must end. Demand for air travel is projected to rise at an impressive angle over the next decade as our economy goes above the per-capita income level of $2,500. For the supply of flight seats to increase steadily and profitably in line with our boom forecasts, we need reforms that jettison the dead weight of an indefensible tax legacy.

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