Aviation cess: Aviation ministry proposes, finance ministry disposes

Rs 500 cess will push up cost of air travel, hit low-cost airlines

BY A CORRESPONDENT
April 10, 2006

The union civil aviation ministry's proposal for to impose passenger cess of Rs 500 on domestic air tickets to fund non-metro airport modernisation has not favour with the Ministry of Finance, which has opposed the proposal saying it would "unnecessarily increase" the cost of air travel.

According to the department of economic affairs (DEA) of the finance ministry, any cess should not exceed Rs 100 per ticket. The proposal has come up in light of the AAI's move to increase the internal rate of return (IRR) of the smaller airports across the country. This would enable the government to avoid the controversial public-private partnership model of airport modernization. The aviation ministry had agreed to the proposal but stressed on improving the IRR of the projects.

A high air passenger cess would hit low-cost airlines especially hard as they have worked hard at keeping their prices competitive with railway fares, one of the major reasons for the rise of air travel in India. According to a Times of India report, the purpose of the cess is also to phase out the route disbursal guidelines, by giving subsidies to airlines willing to operate on non-economical routes.

The proposed cess in the new civil aviation policy had gone to the Union cabinet a few weeks ago, with an estimate of Rs 500 for each domestic ticket, and Rs 600 for every international ticket. With airlines currently floating rates of around Rs 2000 between certain major cities, a Rs 500 cess would amount to an increase of 20 per cent. According to government estimates, such a passenger cess could raise over Rs 1,000 crore by next year.

The government is looking to raise Rs 40,000 crore by 2010 in order to develop airport infrastructure across India. Development is expected to follow a hybrid model, with a few airports being partially given to private hands, in a bid to raise Indian airports to global standards. Upgradation is likely to be carried out in phases, with 25 international airports being developed initially. Funding is still a question mark, with the government having decided on various sources including internal accruals of Airports Authority of India (AAI), external borrowing by the government as well as from private sector partners.