North Block rejects proposal to impose cess on air travel

The civil aviation ministry's proposal to impose a cess on air travel to raise funds to build airports has not found favour with North Block, which has asked the ministry to continue with the present system of cross subsidisation.

"Imposing a new cess does not make sound economic sense. The system to cross subsidise for unviable routes is valid and should continue," a finance ministry official said.

Officials said North Block had, in its comments on the draft aviation policy, pointed out that the unremunerative airports should be revived through the public-private partnership route and any gaps in funding could be met through the government's viability gap funding project.

The civil aviation ministry proposed that every international passenger be taxed Rs 500 for each trip and domestic passengers be taxed Rs 250 per trip.

According to the government's estimates, the plan to impose passenger cess is expected to raise over Rs 1,000 crore (Rs 10 billion) a year.

In addition, airports, both government and private, would have to share a part of their revenue with the government to upgrade the country's airports.

The country's low-cost carriers would be among the worst hit by this move as they would have to charge their passengers with higher priced tickets as well as pay airports higher landing and parking charges.

The government had decided to raise up to Rs 40,000 crore (Rs 400 billion) by 2010 from various sources including internal accruals of Airports Authority of India and external borrowing by the government as well as from private sector partners.

In developing the airports' infrastructure in the country, the government is expected to follow a hybrid model with certain airports being developed completely in the public sector, while some will be developed in public sector partnership. So far, private sector participation has been permitted in Delhi and Mumbai airports.

Apart from the North-East, the government is expected to open airports across the country to the private sector. All the 80 operational airports managed by AAI will be upgraded in phases.

In the first phase, about 25 airports, which account for the entire international travel from India, will be upgraded to global standards.

Besides, the government also plans to develop about six greenfield airports across the country with an investment of over Rs 6,000 crore (Rs 60 billion).