Indian Ministry of Finance announces USD260 million support for Air India in Union Budget FY2010/11

Indian Ministry of Finance announced (26-Feb-2010) the Union General Budget FY2010/11. Key highlights for the Indian civil aviation sector include:

• Financial assistance for restructuring Air India's parent, the National Aviation Company of India Limited (NACIL): USD260 million (INR12 billion);
• Budgetary support of USD434 million (INR20 billion) for the Ministry of Civil Aviation (MoCA), included in MoCA's budget estimate outlay of USD2 billion (INR95.9 million). Central outlay plan of MoCA includes;
  • FY2008/09 actuals: USD1.6 billion (INR74.86 billion);
  • FY2009/10 budget estimates: USD2.6 billion (INR121.65 billion);
  • FY2009/10 revised estimates: USD2.5 billion (INR117.13 billion);
  • FY2010/11 budget estimates USD2 billion (INR95.9 million);
• Budgetary support of USD130.3 million (INR6 billion) for the Airports Authority of India (AAI), inlcuding;
  • USD26.2 million (INR1.2 billion) has been earmarked for development of airports in the Northeast states;
  • The remaining USD104.2 million (INR4.8 million) is for the development of airports in other crucial areas, including Leh, Ajmer, Agatti, Port Blair, Tirupati, Pudducherry;
• Restore the basic duty of 5% on crude petroleum. [more - press release, speech, summary of budget, central plan outlay and key features]
• Service tax of 10.36% to be levied on domestic air services and Economy-class international services, whereas the tax previously applied to premium international services only (TNN, 27-Feb-2010).

Air India: "We are monitoring the impact of the budget and will take a decision on increasing airfares within 24 hours," Arvind Jadhav, Chairman and Managing Director. Source: DNA, 26-Feb-2010.

SpiceJet: "The new tax rates offering relief to 60% of taxpayers and the various taxation proposals will put more money into hands of the consumers. We believe this will favourably impact overall consumption as well as demand for aviation," Sanjay Aggarwal, CEO. Source: TNN, 27-Feb-2010.

Paramount Airways: "The hike in jet fuel and service tax on domestic passengers will be huge and we will not be able to absorb it. We will look towards increasing fares," M Thiagarajan, Managing Director. Source: Business Standard, 27-Feb-2010.

Air Passengers Association India: "The air fares have already gone up in the last three months and there is a threat of User Development Fees also. Moreover, at a time when the industry is also not doing well, the decision to bring domestic travel in the ambit of service tax will be an extra burden on the passengers," D Sudhakar Reddy, President. Source: Press Trust of India, 26-Feb-2010.

Travel Agents Federation of India (TAFI): "Till date only Business/First-class passengers on international flights paid 10% service charge. Now, passengers travelling even in economy class on both domestic and international flights will be charged service tax. The travel and tourism industry was barely recovering from the recession, now this budget comes as a huge blow," Ajay Prakash, National General Secretary. Source: DNA, 26-Feb-2010.