Can inclusion in ECLGS help aviation industry to take off on recovery path?

Recently, the finance ministry said that on account of the disruptions caused by the second Covid-19 wave to businesses across various sectors of the economy, it has been decided to enlarge the scope of ECLGS. The civil aviation sector is to be eligible under ECLGS 3.0.

In March, ECLGS 3.0 was introduced to cover business enterprises in hospitality, travel and tourism, leisure and sporting sectors.

The ministry has also removed the current ceiling of Rs 500 crore of loan outstanding for eligibility under ECLGS 3.0, subject to maximum additional ECLGS assistance to each borrower being limited to 40 per cent or Rs 200 crore, whichever is lower.

Budget carrier SpiceJet said the inclusion of the aviation sector in ECLGS will help the domestic aviation industry, which has been impacted the most by the pandemic. A research report by ICRA estimates the overall debt of the Indian aviation industry to touch about Rs 50,000 crore by 2021-22.

Budget 2021 promised a tax holiday on capital gains for aircraft leasing companies, tax exemption on aircraft lease rentals paid to foreign lessors located at the International Financial Services Centre in GIFT City (Gujarat International Finance Tec-City), an allocation of Rs 600 crore for the UDAN regional connectivity scheme and monetisation of the Airports Authority of India (AAI) assets in Tier-2 and 3 cities. The introduction of tax exemptions is likely to encourage aircraft leasing companies to set up base in India over the medium term. This will benefit the aviation sector in terms of competitive lease rentals for new fleet, reduced forex fluctuations and broad-basing of the financial leasing market in the country.

The budget has not brought ATF (aviation turbine fuel) under GST (Goods & Services Tax) and reducing airport charges. High fuel costs continue to hurt airlines.

As per key recommendations, bringing aviation turbine fuel under the Goods and Services Tax (GST) regime is the topmost demand. The airline companies want reduction in airport charges to attract more customers. As the country enters the recovery mode after months of lockdowns and economic losses, the airlines feel it's important that the Centre takes people-friendly measures to revive the industry.

Other key demands are cut in overflight fees and excise duty. Airlines have also urged the government to extend the lower rate on withholding taxes for another year. Demand for a lower income tax rate structure for travel companies has also been made to the finance minister. The industry has also demanded the Centre to keep GST rates on travel by both private and commercial flights at 5 per cent to reduce cost of travelling for those who don't get GST refund benefits.