core sector communique

Direct Import of Air Turbine Fuel by Indian Carriers to become a reality very soon 

The Ministry of Civil Aviation has written to the Ministry of Commerce on 15th February 2012 to take steps to allow direct import of Air Turbine Fuel (ATF) by Indian carriers in pursuance of the decision of the Group of Ministers’ (GOM) on Civil Aviation, which was taken in the GOM meeting held on 7th February 2012. The GOM in its meeting decided that the Ministry of Commerce will permit direct import of ATF by or on behalf of Indian carriers directly as the actual user and on actual use basis. 

 The decision has come against the background that ATF prices in India are 30 to 40 per cent more than the prices in international market due to high base price and higher taxes. The sales tax on ATF in different States in India is on much higher side, and varies between four to 30 per cent in different States. The Minister of Civil Aviation has recently written to all Chief Ministers of the States to bring down the rate of sales tax on ATF in order to make ATF cheaper for the Indian carriers. It may be mentioned that the revenue from sales tax on ATF contributes only 0.5 per cent to 2per cent of the total sales tax collection of the States while in terms of operational cost of the airlines its portion is almost 40%, which makes the operational cost of the airlines very high. However, most of the States have not responded favourably. 

 The Indian carriers would have to make their own tie-ups with the suppliers having infrastructure to import ATF directly for their use. The sourcing of ATF through direct imports has the potential to lower overall procurement cost of ATF for the airlines as sales tax varying from 4 to 30 percent in different States will be required to be paid only on unavoidable local purchase. Also this would bring down the cost of working capital to the air lines as suppliers credit on lower interest rates will be feasible.