THE UNCERTAINTIES

On the face of it, the scheme appears well crafted and is expected to prove to be a bonanza for the Indian airline industry. However, there may be impediments that could make it difficult if not impossible, for the MoCA to achieve the objectives of RCS as envisaged. While this scheme is regarded by analysts as bold and innovative that is expected to boost the growth of air traffic and consequently benefit both the regional carriers and large segments of the Indian society, it will unfortunately impose a burden by way of higher fares for air passengers flying on non-regional routes. This is seen as somewhat unfair.

In some ways, the RCS will impose new financial burden for regional carriers as well. Airlines seeking to use nonoperational airports, which require substantial investment for revival, in addition to ` 50 lakh that they are required to submit as bank guarantee for every route, they will have to provide a bank guarantee of an additional ` 1 crore to the government. Even though this additional commitment by the airlines is limited to a duration of one year, the industry regards the added financial burden as inordinately high.

But most importantly, as this scheme calls for close coopera- tion with the governments of the states in which the regional airports are located, much will depend on whether the states would come forward to bear the burden of the tax breaks and other incentives to make the scheme a success. The liability of raising funds for VGF is required to be shared between the central and state governments in the ratio of 80:20. Also, the states involved in RCS should be willing to reduce VAT on jet fuel to one per cent or less. Currently, only West Bengal and Andhra Pradesh impose VAT on ATF of one per cent or less. Other states charge much higher rates, some as high as 30 per cent. It may be difficult for these states to willingly and easily accept loss of revenue. Suggestion by the Ministry of Civil Aviation to the states to cut VAT to four per cent has yet not drawn any favourable response from most of them. For the point of view of the states, any reduction in VAT will lower tax revenue for them. A report by GMR Group, which operates the Hyderabad airport, indicates that VAT at 16 per cent charged by the Telangana Government brought in a revenue of ` 150 crore in financial year 2014. If VAT is reduced to four per cent, the loss to the state government will be to the tune of ` 110 crore.

It is clear that the role played by the state governments will be critical to the success of RCS. To get all states affected by the new policy on board to make the scheme a success could prove to be a daunting challenge especially in the prevailing political climate in the country.