India's civil aviation industry has emerged as one of the fastest-growing industries in the country during the last three years. India is currently considered the third largest domestic civil aviation market in the world. However, it’s been a difficult time for India’s aviation sector. Besides the sluggish economy, airlines have been burdened by rising costs of maintenance, high fuel prices, and mounting debt, among other things.
The industry has also turned unattractive for investors. Neither the grounded Jet Airways nor state-owned Air India, on the block currently, has yet attracted any interest from buyers.
Meanwhile, the domestic air passenger growth has plummetted from 18.6 per cent in 2018 to 3.74 per cent last year, the slowest pace in four years. The grounding of Jet Airways in April and the Boeing crisis were one of the biggest deterrents to domestic travel growth last year.
The aviation will, therefore, keenly look to Finance Minister Nirmala Sitharaman for some relief as she presents Union Budget 2020.
Here are the following issues which Sitharaman may address in Union Budget 2020:
Tax relief
Bringing Aviation Turbine Fuel (ATF) under the ambit of the Goods and Services Tax (GST) has been a long-standing demand of the sector. Petrol and diesel are taxed at specific rates of Rs 21.6 and Rs15.8 per litre, respectively, regardless of fuel prices. ATF, on the other hand, is taxed at an 11% ad valorem rate. The difference is that the tax on ATF keeps increasing as global prices go up.
Regional connectivity
IndiGo, SpiceJet, and GoAir have been announcing new routes to connect India’s non-metro cities under India’s Ude Desh Ka Aam Nagrik (UDAN). The scheme caps airfares on tier-2 and tier-3 routes. According to ICRA, the budget is expected to reiterate its focus on improving regional connectivity through its regional connectivity scheme (RCS) and should make flying affordable to the masses by providing a favourable ecosystem.
Foreign Direct Investment (FDI)
According to reports, Modi government is likely to announce a hike in Foreign Direct Investment (FDI) from 49 per cent to 100 per cent to attract bids for the debt-ridden Air India and Jet Airways, slated for sale in 2020. A liberalised FDI cap can assure investors of minimal government interference in future affairs.
More support to maintenance, repair, and overhaul (MRO) sector
This time the government may share details of executing its plan to make India a centre for MRO activities. In line with the increasing thrust on ‘Make In India,’ the budget may focus on incentivising the MRO sector.
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