UP's subsidised air plan sidesteps Centre

By Nirbhay Kumar, New Delhi

The state government is offering incentives like reduced value-added tax of 4 per cent on aviation turbine fuel (ATF)

At a time when the Centre is gearing up to launch a subsidised air travel scheme providing tickets at Rs 2,500, the UP government has its own plans. It has kicked off a programme to offer concessional air services covering cities like Agra, Gorakhpur, Lucknow and Allahabad.

The state government is offering incentives like reduced value-added tax of 4 per cent on aviation turbine fuel (ATF) instead of 21 per cent and no airport charges to keep cost of operations low for carriers.

“The Centre’s scheme may take time to take off. Why should we wait for it? This is the reason we have rolled out our plan. We have got good response from prospective bidders and hope to complete the bidding process in time,” a senior UP government official associated with the project told Financial Chronicle.

The state government wants carriers to fly 18 to 20-seater aircraft to connect these cities. Non-scheduled operators like Deccan Charters, Jindal Aviation and Global Vectra are some of the firms that could participate in the bidding.

According to the business aircraft operators association, there are nearly 121 non-scheduled airlines in the country, which operate a combined fleet of about 350 aircraft. Most planes operated by them are 8-9 seaters with very few operating 20-seater or bigger aircraft.

The central government had earlier this month announced a regional connectivity scheme (RCS) to provide air services in smaller towns, which has so far unserved or underserved. Un­d­er the scheme, an airport will form part of RCS only if state governments lower VAT on jet fuel to 1 per cent or less besides providing co­n­cessional rates for electricity, water and other utilities.

The Centre has brought draft rules for RCS and has asked stakeholders to give their comments by July 22. The scheme is slated to start in the July-September quarter of FY17.

The UP government on the other hand is moving quickly and has already invited request for proposal (RfP) from interested parties. The last date for submission of RfP is August 27.

As per the national civil aviation policy, cleared by the Union cabinet last mo­n­th, the Centre and the states would share the subsidy bu­r­den for concessional air se­r­vices in the ratio of 80:20.

A RCS fund would be created to support regional connectivity by imposing a fee of about Rs 8,000 on each departing domestic flights.

Flights to smaller towns and smaller aircraft would be exempted from the levy. “We would bear the entire cost of viability gap funding (VGF) for the intra-state connectivity. The fare structure is currently being worked out and it would be ensured that it is affordable and not more than what the Centre has proposed in its draft scheme,” the UP government official said.

In the draft scheme, the central government has capped the ticket price for each passenger for a one-hour flight of about 500-600 km at Rs 2,500, with proportionate pricing of tickets for routes of different length/ du­ration. The success of Ce­n­tre's regional connectivity plan depends on the interest and participation of states, as it has a key role to play in reducing cost of operations by providing incentives.

Significantly, the UP government's earlier plan to launch intra-state connectivity failed to take off with limited participation from private players due to commercial unviability of the sc­h­eme. Aviation experts, ho­w­ever, maintain that there has been significant growth in air traffic in the country and demand is visible for air travel in smaller cities.

nirbhaykumar@mydigitalfc.com

http://www.mydigitalfc.com/policy/ups-subsidised-air-plan-sidesteps-cent...

Date: 
Friday, 22 July, 2016
Publication: 
Financial Chronicle