Budget allows airlines to access foreign funds, cuts customs duty on parts (Lead)

March 16th, 2012 - 4:11 pm ICT by IANS  

Pranab Mukherjee New Delhi, March 16 (IANS) In a bid to address concerns of the cash-strapped Indian civil aviation sector, Finance Minister Pranab Mukherjee said Friday domestic airlines could borrow up to $1 billion in external loans for a period of one year and also curtailed customs duty on aircraft parts.

“To address the immediate financing concerns of the civil aviation sector. I propose to permit external commercial borrowing (ECB) for working capital requirement for the airline industry for a period of one year subject to a ceiling of $1 billion,” Mukherjee said while presenting the budget for 2012-13 in the Lok Sabha.

ECB is a mode used by the government to facilitate the access to foreign funds by Indian corporations and public sector undertakings.

Mukherjee further proposed to exempt the maintenance, repair and overhaul (MRO) sector from basic customs duty on aircraft parts, tyres and testing equipment.

“India has the potential of establishing itself as a hub for third-party MRO of civilian aircraft. To actualise this potential, I propose to fully exempt from basic customs duty aircraft parts and testing equipment imported for this purpose,” Mukherjee said.

“As a measure of support to the airline industry, it is also proposed to fully exempt both new and retreaded aircraft tyres from basic customs duty and excise duty.”

According to Mukherjee, the proposal for allowing foreign carriers to invest up to 49 percent in the domestic carriers is under active consideration of the cabinet.

“A proposal for allowing foreign airlines to participate up to 49 percent in the equity of an air transport undertaking engaged in schedule and non-schedule transport services is under active consideration,” he said.

Last month, Civil Aviation Minister Ajit Singh had moved a cabinet note seeking 49 percent foreign direct investment (FDI) by foreign carriers in domestic airlines.

Currently, the government allows FDI up to 49 percent in Indian carriers by non-airline players but bans foreign airlines from directly investing for security concerns.

For reducing the ATF (aviation turbine fuel) price burden, Mukherjee said the government has allowed airlines to directly import jet fuel as actual end-users, thereby avoiding the state value added tax (VAT), which ranges from three to 33 percent.

“The high operating cost of the sector is largely attributable to the cost of ATF. To reduce the cost of ATF, government has permitted direct import of ATF by Indian carriers, as actual users.”

The Economic Survey for 2011-12 tabled by Mukherjee in the Lok Sabha Thursday had noted the woes of the airline industry.

According to the survey, a working group was constituted to address issues concerning the viability of the civil aviation sector had made several recommendations like rationalisation of VAT on ATF by state governments, allowing foreign airlines to invest in domestic carriers and direct import of ATF by airlines.

“The working group also decided that airlines should be asked to prepare their turnaround plans, which would be examined by the concerned departments of the government separately for each airline. Another recommendation was that fare structure should be reviewed by airlines so as to cover the cost of their operations,” the survey said.

According to International Air Transport Association (IATA) estimates, the Indian aviation sector would require $140 billion in the next 20 years to keep pace with the growing demand.

Other estimates have placed the current fund needs of the airline sector at $2.5 billion, with Air India alone accounting for $1.32 billion of the total.

For travellers, Mukherjee proposed an increase in duty-free allowance for Indians travelling abroad from Rs.25,000 to Rs.35,000.

“Baggage allowance for Indians travelling abroad was last revised in 2004. I propose to increase the duty-free allowance for eligible passengers of Indian origin from Rs.25,000 to Rs.35,000 and for children of up to 10 years from Rs.12,000 to Rs.15,000.”

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