The country’s ailing aviation industry sensed a streak of relief on Tuesday, as a Group of Ministers (GoM) headed by finance minister Pranab Mukherjee cleared a proposal to allow Indian carriers to import fuel directly. A note on the issue will be moved soon.
Civil aviation minister Ajit Singh said clearance on the matter would come from the Cabinet. He was talking to reporters after the GoM meeting.
Importing directly would help airlines save at least Rs 2,500 crore annually, a fourth of their total ATF (aviation turbine fuel) bill of Rs 10,000 crore.
Currently, airlines buy ATF from oil companies. It is imported on their behalf and hence the airlines have to pay hefty states sales tax. Direct import for own consumption would spare the airlines from such a levy. The average tax on jet fuel in India is 24 per cent, the world’s second highest —second only to Bangladesh at 27 per cent. Fuel cost comes to around half the total operating cost of an airline, and adds to the reasons for their losses of late.
Analysts also feel allowing direct import of fuel will not act as a solution to all the problems of the airlines; but this will still be a part of the solution.
“No airline would import all its oil needs, but a part of it can surely be imported through the help of oil marketing companies,” says Amrit Pandurangi, senior director at Deloitte Touche Tohmatsu, a financial advisory firm. “Importing directly and not paying any sales tax to states will impact state governments’ revenue, forcing them to reduce the tax on ATF.”
Allowing any airline to import oil directly will require the government to change the Foreign Trade Policy (FTP).
DGFT has the power to relax the norms, provided certain stringent conditions are met as laid out in the FTP, which categorically maintains that relaxation can be given if only there is a genuine damage. The FTP of 2009-2014 stipulates that import of ATF will be allowed through a particular state trading enterprise. In India, only Indian Oil Corporation can import jet fuel.
The stock market welcomed the GoM’s permission. All the aviation indices achieved their month’s high during the day’s trade on Tuesday even as the Bombay Stock Exchange Sensex fell by 84 points to close at 17,622.
Jet Airways closed 14.48 per cent higher at Rs 341.20, Kingfisher Airlines was 13.20 per cent higher at Rs 29.15 and SpiceJet 10.98 per cent higher at Rs 27.30.
Airlines ask RIL to handle ATF services
Reliance Industries on Tuesday said it had been approached by airlines to provide them services for handling jet fuel on their behalf at the airports. The discussions are in the preliminary stage and modalities are yet to be finalised, the company said.
