Indian aviation sector pin hopes on Budget 2022

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Indian aviation sector pin hopes on Budget 2022

The Union Budget 2022 -- 23 is right upon us and as an industry trying to recover from the turbulence caused by the Pandemic, the aviation sector is pinning its hopes on the Budget that is to be presented by Finance Minister Nirmala Sitharaman on February 1, 2022.

The aviation sector saw a series of highs and lows in the last financial year as it was confronted with the second wave of the epidemic when it started to recover from the impact of the first one and is now enduring the consequences of a third wave that has been triggered by the omicron variant.

The aviation sector is looking forward to the Budget with the hopes of getting fiscal incentives and concessions to steer the sector on the path of economic revival.

The industry expects to introduce measures to increase the liquidity of airlines and airport operators this year, such as a lowering of taxes on air turbine fuel ATF and a reduction of 18% minimum alternate tax, and an increase in the threshold for the amount that can be spent at duty-free shops.

A reduction or waiver of taxes is not only necessary but necessary to propel the sector into recovery mode because of the expenditure on ATF accounts for approximately 25 - 40% of the operational costs of the airlines.

A reduction in the GST on the purchase of aircraft and aircraft parts or a waiver of GST required on the re-import of aircraft and aircraft parts that are repaired or serviced abroad could be among the measures to increase the liquidity of stakeholders in the aviation sector.

In order to equip the stakeholders with adequate working capital, the government could consider a reduction in the interest on working capital lines provided to airlines and airport operators, or make necessary adjustments in the Emergency Credit Line Guarantee Scheme to ensure ready availability of working capital without jeopardising the exposures of the lending institutions.

The Union Budget last year also featured key announcements pertaining to asset monetisation and privatization of 6 to 10 airports.

It is expected that this year's budget will feature announcements pertaining to the privatization of more airports to get the necessary resources to meet the goal set by the Ministry of Civil Aviation of building 100 new airports by 2024.

In addition to the trend of expanding existing airport capacity, more routes will be added to the Regional Connectivity Scheme, a government initiative that is intended to boost tourism by connecting with underserved and underserved airports.

The MRO business of Indian airline operators is currently outsourced to MRO players outside India due to limited capabilities. Tax incentives similar to the ones offered to support the domestic aircraft leasing and financing industry will certainly attract foreign MRO players to carry out their business in India.

Last year, the government introduced a new policy for MRO services that included features such as the allotment of land through open tenders for a period of 30 years and the abolishment of royalty charges that are required to be paid to the Airports Authority of India.

The size of the Indian MRO industry is poised to increase from $1.7 billion in 2021 to $4 billion by the year 2031, and it is important that the lawmakers use the Budget as an opportunity to introduce the measures necessary to set India on the path of becoming a global MRO hub.

In 2021 -- 22 the Indian aviation sector is expected to report losses of around 20,000 crores and need additional funding of 37,000 crores over the next two fiscal years to recover from the impact of the pandemic.

The Budget is going to determine the pace of recovery for the industry and fiscal incentives will go a long way in providing the much needed fillip to the aviation sector.