Fueling problems

The decision by an empowered group of ministers (EGM)  to allow airlines to directly import aviation fuel is bad in concept and almost useless from the point of view of implementation.

It has buoyed up the aviation sector but the cheer may not last long. The cost of fuel accounts for about 40 per cent of the operating expenses of aviation companies. Aviation fuel is about 50 per cent costlier in the country than abroad and the intention behind the move is to give relief to the cash-strapped and debt-ridden airline companies.

But the higher price is accounted for by the taxes imposed by the states and it would be wrong on the part of the Centre to deprive the states of their revenues to benefit private companies. The states and oil marketing companies have opposed the move. Some states may impose an entry tax on the fuel to compensate for their loss. This might neutralise the benefits that airline companies might hope to get. Moreover, there is no case for subsidising the aviation sector at the expense of public revenue. Neither the airline managements nor those who use the sector are below the poverty line. The taxes are based on the principle that polluter must pay. Why should this be diluted?

Airline companies do not have the infrastructure needed for import, storage and distribution of large quantities of aviation fuel. They will have to pay for these facilities and  services  to those who arrange and undertake them. This will not come cheaply and the gains from the lower upfront costs may be partly or entirely offset by the cost of taking the fuel from the ports to the aircraft. It will lead to a situation where the states lose sizeable revenue and the intended beneficiaries do not gain much. There is also no rationale for allowing import of aviation fuel when Indian oil refining companies export much of the aviation fuel that they produce. Imports by airline companies will hurt them.

Air  traffic is steadily increasing in the country. Airline companies are in doldrums because of mismanagement, lack of planning, inefficiency and unfair competition they have to face from Air India, which is subsidised and supported by the government. Any initiative to help the sector should start with the removal of policy distortions and allowing free play of commerce, which will create a congenial environment for independent and sustainable growth.

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