Draft Report of the High Level Group on Services Sector

3.2 Air Transport

A few years ago non-availability of seats on flights to and from India deterred international tourists and the high domestic fares was a handicap for leisure travellers within the country. The position has eased considerably and with the progressive liberalization of bilateral agreements and introduction of open skies policy there is better availability of seats on international flights. The process of liberalization must continue in order to increase (i) direct international connectivity with non-metro destinations and (ii) direct air connectivity with long haul overseas markets. The entry of low cost domestic carriers has improved access to air travel within the country as well and eventually could lead to opening up new areas to tourism in India such as the North East. The growth in air traffic has also led to the inadequacies of the airport infrastructure being exposed but the work of upgradation of 48 non-metro airports, the construction of green field airports in Bangalore and Hyderabad, the expansion of airports in Delhi and Mumbai on PPP basis, and the modernisation of Chennai and Kolkata airports being taken up by he Airports Authority is likely to improve the situation in the next two or three years. However, it is necessary to take up modernization of the remaining non-metro airports also as they too are becoming congested due to growth of traffic. With the modernization of airports and operationalization of some green field airports it is necessary that the aspect of fast connectivity between the city centre and the airports receives attention simultaneously.
More needs to be done to make air travel within the country affordable for the tourist. The State Governments levy sales tax on ATF at a high rate that goes up to 40 per cent in some cases and sales tax on petroleum products has remained outside the purview of State VAT. As it is Indian ATF prices have been high and rising further because of the escalating crude oil prices and the taxation makes our ATF prices 60 to 70 per cent costlier than in competing countries. High ATF prices is one of the principal factors responsible for high domestic air fares as a result of which it is cheaper for the Indian leisure traveller in North India to take a holiday in Malaysia or Thailand than in South India. One of the best ways of improving the competitiveness of Indian tourism is to moderate the taxes on ATF. Two solutions could be considered: either the Centre brings ATF within the definition of Declared Goods, reducing the incidence of duty to 4 %, or the States are persuaded to adopt the standard VAT rate of 12.5 %.