Help Airlines Do Business in India

The International Air Transport Association (IATA) has called for the development of a comprehensive policy for aviation aligned with the Indian Government’s stated intention to make it easier to do business in India. The objective is to allow India to derive maximum social and economic benefits as its aviation market grows to become the third largest in the world. That is expected to happen in 2029 when the number of travelers to, from and within India will near 280 million annually.

“Already aviation and aviation-related tourism support 7 million Indian jobs and $23 billion of India’s GDP. The healthy growth of the sector has the potential to expand these benefits tremendously. But there are immense challenges which must be overcome—as seen in the sector’s financial performance. While demand growth is robust and some airlines are generating profit, sector-wide losses for India are still expected to exceed $1 billion this year. Onerous regulation and processes, debilitating taxes and expensive infrastructure are holding back the industry’s ability to deliver greater economic benefits to India,” said Tony Tyler, IATA’s Director General and CEO.

Tyler was delivering a keynote address at the Aviation Day India organized by IATA together with India’s Ministry of Civil Aviation (MoCA) and the Confederation of Indian Industry. In his address Tyler highlighted three priority areas where work is needed to reduce costs in India:

Reducing the Tax Burden: The application of Service Tax should be aligned with a principle that it does not apply to services rendered outside of India including those for overflight charges, global distribution systems, extra baggage fees and international tickets. He also highlighted that the incoming GST regime should also zero-rate international air transport services in line with OECD guidelines, the need to follow international treaties that protect airlines from double-taxation on income and the need to avoid double-taxation within India in situations where airlines are effectively taxed on taxes collected.

Competitive Fuel Pricing: State taxes on jet fuel can be as high as 30%. Tyler urged the government to grant “declared goods” status for jet fuel which would limit taxation. “The decision to introduce competition in jet fuel supply at key airports needs to be followed up with open access to the pipelines that get fuel to the airport in order for efficiencies of a liberalized market to be realized,” said Tyler.

Allowing AERA to do its work: Tyler highlighted the importance of allowing the Airports Economic Regulatory Authority (AERA) to do its work independently. He called for action in three areas:

• Overcome legal challenges which prevent AERA’s recommendation for a 78% reduction in Delhi’s airport charges from being implemented.
• Protect the independence of AERA and the principle of a “single till” for airport charges in light of stock exchange filings which show that the Ministry of Civil Aviation had instructed AERA to use a hybrid till for its “independent” determination of airport charges at Hyderabad.
• Carefully assess the proposed privatizations of Jaipur, Kolkata, Ahmedabad and Chennai to ensure that the “single till” principle is maintained and that the privatization terms are appropriate to the level of development at the airports. Significant public investment in these airports should be considered in a cost/benefit analysis aimed at determining if the public interest would be best-served by a concession contract or a management contract.

Smarter Regulation

“Regulation is also holding back the development of the sector. Well-intentioned regulations, but which are inconsistent with global standards, make doing business in India very difficult for the airlines. India imposes rules and requirements that are not seen anywhere else,” said Tyler.

Tyler highlighted several examples where Indian regulation is out-of-step with global standards and best practices.

“India needs smarter regulation. This essentially means taking a business-like approach to regulation using common-sense and proven principles. These include targeting regulation to address real issues, using global standards where they exist, satisfying a rigorous cost benefit analysis and consultation with industry. If we can work together to build regulations that meet the public interest, are consistent with global standards and which can be implemented efficiently then we are all winners. And we will avoid the angst involved in unwinding mistakes,” said Tyler.

“There is a great opportunity for the government’s ease of business agenda in aviation. Aviation is already a largely standardized industry with many global references to guide us. And by working with MoCA based on airline input, we could develop and deliver an effective action plan for aviation in India. I would like to be ambitious about what we can achieve. Aviation should be the model sector demonstrating India’s efforts to make it easier to do business here,” said Tyler.