Editor's Blog

Jet and Kingfisher’s crash landings highlight obstacles to tourism take-off
Wed 10 Jul, 2019 at 12:00 am

India has the potential to become a tourism industry superpower but the lack of this government’s will to create an infrastructure for growth has resulted in dismal performances in preceding years, with inbound tourism limited to about half of the outbound tourism that the country generates. It is an industry ripe to be harvested for huge economic growth – for revenue as well as employment.

Indian carriers are expected to induct about 600 aircraft into their fleets in the next decade. India has decided to open embassies and high commissions where the country does not have diplomatic missions yet and have already approved 18 new diplomatic missions in Africa. The proposed development of 17 iconic tourism sites to improve the flow of domestic and foreign tourists to and from these destinations is also on the cards.

However, the tourism industry overall has not been given any incentives in the recent budget and the concerns of the tourism industry stakeholders, representing an industry that contributes to 10 per cent of the country’s GDP, have not been addressed.

The government led by Narendra Modi, has embarked on a spate of industrial and fiscal reforms, exemplified by the National Budget presented in Parliament. Other than the boost in infrastructure development which benefits all sectors, finance minister Nirmala Sitharaman has initiated some far-reaching reforms in the Indian civil aviation sector. The Indian aviation industry has grown manifold with a huge surge in both domestic as well as international travel resulting from higher disposable income as well as growth in businesses necessitating travel. However, the viability – or otherwise – of running a profitable airline has been highlighted with the crash-landing of Kingfisher Airlines and, in the very recent past, Jet Airways. Partly because the lack of interested foreign investors, throttled by the upper limit of 49 per cent equity in an Indian carrier, has been restrictive. One of the major ailments that has affected the bottom line is the high taxation of aviation turbine fuel that constitutes about 40 per cent of a carrier’s operating costs. As a result, the supposed low-cost carriers, offering no frills, have raised fares to sky-high levels.

Now the government of India wants to develop the country as a hub for financing aircraft purchases and leasing and also the subsequent maintenance, repair and overhaul (MRO) of the fleets. This is expected to lower the financing cost of airlines and reduce expenses incurred on aircraft servicing as currently most aircrafts are sent overseas for maintenance, repairs and overhaul. The finance minister is also considering relaxation on the cap on foreign direct investment (FDI) in a joint venture airline that is limited to 49 per cent at present.

“As the world’s third largest domestic aviation market, the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores. This is critical to the development of a self-reliant aviation industry”, said Sitharaman.

Anand Stanley, president of Airbus India and South Asia, said: “FDI relaxation in aviation will boost the government’s disinvestment programme. We look forward to the support from the government for tax reform to incentivise airlines and boost the MRO industry so that the cost of servicing aircraft is not only competitive but distinctly attractive.”

 

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