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October 30, 2008

Policy Confusion in the Air

In an article for The Economic Times, Suhel Seth, an advisor to British Airways, points out the problem facing Indian airlines has more to do inaction on "vital but unpopular steps" on the policy front, including "day-light robbery" by PSU oil firms on the ATF pricing front.
States in India are levying a state sales tax of 25% to 32% on ATF (aviation turbine fuel). But the catch is not just the obscenely high tax. The base rate of the ATF that is being offered by the oil companies is double the international price of fuel at current rates. So while Murli Deora has every right to berate the airlines for not paying the oil companies on time, the truth of the matter is, they are not selling ATF. They are instead indulging in day-light robbery and operating as a cartel , not the airlines.

The Airports Authority of India charges the highest for any aircraft related activity. For instance, the landing charges in India are the highest in the world; add to that the infrastructure limitations in terms of runways and you have yet another dangerous situation. Every minute you spend hovering in the air costs a fortune at current ATF rates, but yet again, this is not being factored in.

You then have an alarming situation of political interference in retrenchment issues. Naresh Goyal was silly to take back all those people and I have the fullest sympathy for those who did lose their jobs. They had no business to be axed in the manner they were but that is no excuse for the manner in which they were welcomed back. Everyone knows that the political class leaned on Naresh Goyal and he wilted. In the process, you have created a new spectre of demonic activity qua employees and the political class.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in