Delhi allows airlines to access foreign funds

In a bid to address concerns of the cash-strapped Indian civil aviation sector, Finance Minister Pranab Mukherjee said on 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 per cent in the domestic carriers is under active consideration of the cabinet. “A proposal for allowing foreign airlines to participate up to 49 per cent 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 per cent foreign direct investment (FDI) by foreign carriers in domestic airlines. Currently, the government allows FDI up to 49 per cent 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 per cent. “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 on 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.