Fuel populism killing air transportation
India, the world's largest democracy, has a sorry record in sound and bold economic administration. Populist measures abound, and nothing is sacred or immoral in the perpetual quest to obtain and then secure the "gaddi".
Fuel pricing in India is a prime example.
Officially, the "Administered Price Mechanism" was abolished in 2002, but today, the Indian government has a greater control on the fuel market and prices than ever before. Private operators have been driven out of the market, and only the Government owned companies survive.
Government have become addicted to their windfall fuel tax income. In the last 6 years, fuel tax collections have increased almost 250% to a staggering Rs. 170,000 Crores (Rs. 1.7 trillion or US$ 41 Billion).
Indian bureaucrats have learnt well from the Europeans and their "tax and spend" Keynesian economic models. Fuel taxes are greater than the cost of the fuel. In Bangalore, when we pay Rs. 57 for a litre of Petrol, Rs. 32 is taxes, only Rs. 25 is the cost of the actual fuel. Internationally, the cost High Speed Diesel ex-refinery (excluding taxes, duties, levies, etc), is marginally higher than Petrol. Yet, in India, Diesel costs 35% less than Petrol, thanks to lopsided tariffs and populist driven subsidies.
The one fuel that is truly free in pricing is Aviation Turbine Fuel (ATF). Thanks to the government induced haemorrhaging, and the traditional, but wrong view, of air travel being a luxury, oil companies are using deregulation on their favourite whipping boy -- ATF. In India, ATF costs double than prevailing international prices.
The results are plain to see. Despite being leaders in the global airline growth story, airlines in India, today, are bleeding, and bleeding bad. Losses in 2008-9 fiscal, are expected to cross $2 billion. Unable to sustain, in sheer desperation, airlines are hiking air fares, cutting back schedules, deferring aircraft deliveries, laying off staff, even considering importing their own fuel.......... in short, anything, to cut down losses.
This has resulted in air traffic crashing all across India. In Bangalore, the shining example of India's air traffic growth, from an annual growth rate of 33% year on year, for the first time since 2001, air traffic is actually falling to levels below that of the previous year.
Additionally, due to the remoteness of BIAL airport, regional air traffic is decimated, with air passengers switching to trains and buses instead. We might be tempted to say "so what". But we overlook the productivity aspects in the slower transit time of trains and buses. And in today's globally competitive economy, productivity matters.....a lot.
The operators of the Bengaluru International Airport, BIAL, now face an additional quandary. The airport terminal is reportedly, under capacity, and needs immediate expansion. Till now, their primary source of revenue, has been landing charges levied on flights. Thanks to a reduction in flight operations by the airlines, their income stream and cash flows have been reduced. So BIAL is increasingly forced to rely on passenger based User Development Fee (UDF), which has both the Government and passengers united in their opposition.
An imposition of UDF by BIAL on domestic passengers will only aggravate the already bad situation, and result in a further compression of air traffic. A downward spiral into a bottomless pit.
A possible solution requires bold decisions. Something both the political and administrative establishment in India are not known for.
- Government has to pledge at least 10% of its fuel taxes towards public transportation infrastructure. My friends in the auto industry will hate me for this suggestion, but our cities are choking in their own growth.
- ATF pricing should be reduced to international price parity. Ex-refinery, and taxes, union and state. Everyone should share the burden, including the airports and airlines. They must pass on the savings and re-invigorate the market, not use it to butress their bottom lines.
- A moratorium on UDF for at least 12 months by all airports in India. Keep all possible costs low.
- Allow HAL airport to handle regional air traffic. BIAL, by sticking to its hardline, will only continue to drive passengers away from the air, to trains and buses. A negative for all stake holders, including the citizens of Bangalore. We have to bring them back in to the air.
- Diverting part of the regional traffic to HAL will give BIAL breathing room, and delay the need for a costly second terminal till world economic conditions improve.
- Forget a "temporary terminal". Passengers will not accept travelling 50km, paying a UDF, and then using a "tent".
This is just one view point. Other constructive suggestions are welcome via the comments section.
[Moved off the frontpage since not directly related to civic issues - blr_editor ]
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confirmation
"Allow HAL airport to handle regional air traffic. BIAL, by sticking to its hardline, will only continue to drive passengers away from the air, to trains and buses. A negative for all stake holders, including the citizens of Bangalore. We have to bring them back in to the air. "
Why would you oppose to people shifting to Trains and Busses for short distances? I'm curious. As in my previous post, wouldnt or couldn't train travel compliement air travel? Can't we have interaction between transport systems hence sharing the burden? Why do we need 3 modes of transport (bus, train and air) competing each other? There could be competition within, as private players as in Air and Bus.
User Interaction Designer
Bangalore
How about BIAL selling ATF?
Productivity counts and lets not forget hotel costs
Hi Narayan
As I indicated in my article, productivity counts. Not that rail and bus are not important. Actually all 3 modes are needed to grow the traffic and productivity.
Also, all regional cities (i.e. within 1 hour flying) at not conveniently connected by surface transport. Hyderabad, Cochin, Trivandrum, etc., cannot have a day trip using surface transport.
Productivity aside, with surface transport, one then incurs the cost of some form of lodging, to shower and change. That adds to the cost of the whole trip, and lets face it, by and large, decent hotels are not cheap, anywhere in India.
-----------------------
Regards
Devesh R. Agarwal
Visit my aviation blog at http://aviation.deveshagarwal.com
Regards
Devesh
Bangalore Aviation
Enjoy life, destroy FUD
Reselling ATF attracts sales taxes
Any form of "resale" of any fuel will attract the full load of state sales tax. In Karnataka it is a lowly 28%. Compare that to 4% in AP.
BIAL already charges some amount for fuel "throughput" i.e. the permission to pump fuel to airplanes. I think it is around Rs. 1000 or 2000 per kilolitre.
The ATF rate in India today is around Rs. 77,800 per KL vs. 37,000 globally.
KF is exploring importing its own fuel and "self consumption" avoids the states' sales taxes. However, distribution is proving to be a problem.
-----------------------
Regards
Devesh R. Agarwal
Visit my aviation blog at http://aviation.deveshagarwal.com
Regards
Devesh
Bangalore Aviation
Enjoy life, destroy FUD
Any hope for reduction in tax rate of 28% ?
Devesh,
Is there any hope for reduction in this tax rate of 28% from the new government? People vouch for this new govt being pro-people?
Syed
Fuel Populism killing air traffic
Devesh,
Your comment
'Additionally, due to the remoteness of BIAL airport, regional air traffic is decimated, with air passengers switching to trains and buses instead. We might be tempted to say "so what". But we overlook the productivity aspects in the slower transit time of trains and buses. And in today's globally competitive economy, productivity matters.....a lot.'
I don't buy this at all, the remoteness of BIAL has very lttle to do with this drop. How remote is Mumbai airport from its commercial center in the south (churchgate, nariman point, marine drive etc)? In terms of drive time not much different. I don't see people jumping up and down about its remoteness.
Second, technology today has made tele/video conferencing far more convienient and viable to conduct business remotely; the main reason for Bangalore's growth besides human capital.
Private enterprise, especially in India, has grown in the face far more insidious and treacherous obstacles than the remoteness of BIAL. Trust me, this will at worst be a minor irritant to Bangalore industry and will not faze it.
--amaku
Hi Devesh
Hi Devesh
Talking about productivity, I have highlighted many times before the inadequate air traffic
in Bangalore to productively operate 2 airports. Seattle is an airport I am very familiar with and the number
of takeoffs it handles in a day (597) on it's 2 runways is just 35 short of Mumbai & Delhi combined. Seattle's 3rd new runway is not yet operational so I am considering it a 2 runway airport for now. Here are traffic statistics (TAKEOFFS) I have gathered over the past few days as time permitted. The numbers are around 98% accurate give or take a few. Gatwick (single runway) handles 175 takeoffs in a 6 hour period between 6am to 12noon which is 5 short of what Bangalore has in a entire 24 hour period.
DEL SEA LHR LGW BOM BLR
00:00 to 03:00 19 8 0 1 21 13
03:00 to 06:00 29 6 2 15 37 9
06:00 to 09:00 60 116 144 84 62 35
09:00 to 12:00 51 109 141 91 40 31
12:00 to 15:00 41 114 154 67 43 18
15:00 to 18:00 41 102 155 76 44 27
18:00 to 21:00 54 85 137 74 45 33
21:00 to 00:00 20 57 75 21 25 14
--- --- --- --- --- ---
Total 315 597 808 429 317 180
The above just shows takoeffs. So assuming we have equal number of landings we get total ATMs(aprox) of -
DEL SEA LHR LGW BOM BLR
630 1194 1616 858 634 360
Let's say Bangalore's traffic magically doubles overnight and BIA has a 2nd runway it just manages to beat BOM or DEL by 50 takeoffs but still trails way behind other major 2 runway airports like LHR and SEA and still behind the single runway airport Gatwick. I am surprised you have choosen not to highlight that productivity issue as well. Even Delhi with it's upcoming mega terminal and additional runways does not need a 2nd airport. Mumbai is the only one which currently probably has the justification for a second airport with inadequate space to expand since the 2nd parallel runway cannot be built due to slum encroachments.
Yes ,right, we have congestion issues now in the air in all our airports similar to our mismanaged road infrastructure where travelling 15 kilometers on our city roads can take 1.5 hrs and even a millonaire globe trotter like Azim Premji perhaps does at least 20plus (if not hundred) road trips on the city roads per every flight that he takes [I have no facts on his road trips :-) but this is an educated guess where I am shooting from the hip]. I am sure that you may know Nandan Nilekani of Infosys personally considering that you serve on BICCI. My cousin knows him and it seems he has joked to her on a couple of occassions that left to himself he would prefer a helicopter as opposed to travelling on Bangalore's roads. So, how come there is no mention about the lost productivity from millions of Bangalore's folks who have to put up with lost productivity due to pathetic roads?
Sir, it is very surprising to see such a "doomsday" negative scenario being painted on a number of things with the constant one liner of "keep HAL open" which really questions the arguments being made and the facts on which they are based.
I can very well make an argument stating that Bangalore does not need an international airport, for discussions sake let's assume this scenario -> let's go by your argument that HAL should be kept open for regional flights. Let's say there is no restriction on the number of seats (it there is then for this discussion I will question that and insist no cap). Then, somebody will open an airline with a lot of scond hand 747s and operate very frequent flights to Chennai. Chennai airport let's say is privatized and handed over to a very smart operator who makes it a hub feeding on these 747s and offers lower landing charges and other incentives to international airlines, then all that needs to be done is operate non stops from Chennai to global cities. All it takes is 20 747s in a single class configuration (500 passengers) to operate those regional flights to Chennai for onward International connections. No regulations can control this since passengers can buy a separate Bangalore-Chennai low cost regional ticket on their own separate from their low cost international ticket from Chennai and will still be 1 stop away from any global city. International airlines will also be gleeful because they will have lower landing fees and access to both Chennai & Bangalore traffic. There we go, no need for BIA at all. Widebodies are not suited for small flights due to the strsesses involved because of a high number of landing & takeoff cycles but it doesn't matter if the plane is bought second hand and generates quick revenue.
Coming back to BIA, let's say it gets it's second runway, then it's ATM capacity will be 60 movements per hour. But I am being conservative because the productivity levels of our air traffic infrastructure are low. So, we are easily looking at a ATM figure of 1440 per day given the fact that we 1) have very good weather conditions compared to the airports I have listed 2) we have VERY LOW air traffic densities in our skies compared to the skies of those airports. It has been repeatedly highlighted by everybody including me that the terminal at BIA needs to be expanded but looks like almost everything starting with the roads/lack of connectivity from the city to ATF has the common denominator of "HAL airport should be open for regional flights" when HAL, inspite of having every chance could not even provide a decent approach road let alone an airport terminal.
LCC Terminal
Forget a "temporary terminal". Passengers will not accept travelling 50km, paying a UDF, and then using a "tent".
If this Temporary Terminal provides a cheaper facility for the airlines (Cheaper than HAL) then wouldn't the airlines prefer BIAL? Considering the apron service to be better/more efficient, Landing charges less than AAI charges at HAL and now terminal charges too reduced?
Can't really call it a tent as I havent seen any renditions of it yet. But I am sure it can still be aesthetical and clean while being temporary. I understand RGIA is mulling the though of the same terminal.
I did read a while back that BIAL charges Rs 700/ KL of fuel. This I understand was less than HAL and the only airports that charged less than rs 700/KL were Bbay and Delhi. But that was a while back, things might have changed.
Still if you look at it Plane is the fastest way to get to Hyd, Cochin and Mangalore. A hyderabad journey is typically 4 Hours (1 hour getting to the airport, 1 hour checkin, 1 hour flight and a 1 hour travel into HYD), and the train is a good 10-12 hours atleast. A day trip is very much possible. Leave home at 6 am your in HYD at 10 AM leave at 6 PM your back home at 10 PM. Is that being very optimistic?
Lastly I only hope people see this as an oppurtunity to start finding alternative modes of communication (Video Chat, live testing...etc) to find a way to stop burning millions of litres right below the Ozone layer! I'm not an activist or a campaigner for Global Warming, simply scared that the planet will die before me!
User Interaction Designer
Bangalore
Government addicted to fuel tax revenue
Syed, unfortunately, I do not see that happening. During BSY tenure as state finance ministe, there was no reduction on taxes.
Bottom line, is that Government is addicted to the "lazy" revenue they are getting from fuel taxes.
You might be astounded to learn that for all the revenue Bangalore generates for the state of Karnataka, less than 3% of it is ploughed back to Bangalore. The balance 97% is distributed to rest of the state.
-----------------------
Regards
Devesh R. Agarwal
Visit my aviation blog at http://aviation.deveshagarwal.com
Regards
Devesh
Bangalore Aviation
Enjoy life, destroy FUD
Bangalore and Karnataka
//You might be astounded to learn that for all the revenue Bangalore generates for the state of Karnataka, less than 3% of it is ploughed back to Bangalore. The balance 97% is distributed to rest of the state.//
I don't see anything wrong in this. Bangalore should be a gateway to Karnataka and the taxes generated in Bangalore should help the people of Karnataka first and others later.
Taxes of Bangalore should help Bangalore first
I don't see anything wrong in this. Bangalore should be a gateway to Karnataka and the taxes generated in Bangalore should help the people of Karnataka first and others later.
Sorry, but I think taxes of Bangalore should help Bangalore first and then the balance can be used for Karnataka. I work hard for my money and the taxes I pay. I expect my taxes to help me and my fellow Bangaloreans first.
This populism driven imbalances in our economic planning have to stop. How long can anyone flog the milking cow and not feed it, before it collapses. Its the same thing that the policies of Government and the desperation of oil companies have done to ATF.
And we are discussing why infrastructure in Bangalore is not keeping pace with its growth.
-----------------------
Regards
Devesh R. Agarwal
Visit my aviation blog at http://aviation.deveshagarwal.com
Regards
Devesh
Bangalore Aviation
Enjoy life, destroy FUD
No quid pro quo
Devesh,
One of the principles of taxation in India is "No quid pro quo". It means you have no right to expect benefits proportionate to the taxes you pay.
Srivathsa
Drive safe. It is not just the car maker which can recall its product.
Direct Taxes
Devesh,
If you are so worried about Bengaluru not getting it's share of the pie, then why don't you campaign for more of our direct taxes to be allocated to Bengaluru instead of Bihar as it is done now?
Its time for quid pro quo in taxation
Unfortunately this is a heritage we have adopted from the Europeans. May be changing the Quid Pro Quo is one of the bold decisions the government needs to take.
However, I do believe that this principle applies on an individual basis, not as a group. I am not proposing that Mukesh Ambani should get maximum share of services since he is a mega tax payer. But do you not feel that one of the primary reasons for the decline of Bangalore has been the failure of government to re-invest a part of the tax income in the city? 3% is ridiculous. No wonder people shy from paying taxes.
If you see the US, there is really no city the size of Bangalore. The metro area will be made up of many small cities. In Dallas there are more than 100 cities. This makes government more local, accountable and hence responsive to local community needs. The older cities of the North East which followed the European example of large cities are failing to keep up the same way.
Local government also allows for some level of sanity in tax income. Just as an example. In Texas the base sales tax rate is 6%. That is charged on ALL goods, except unprocessed foods and medicine. Counties (like our Districts) are allowed to charge an additional 1% and the city another 1%. If they city has a mass transit/transport system, they may charge up another 0.5% which should be used to fund the transit system. So Arlington has 8%, Fort Worth 8.25% and Dallas 8.5%.
-----------------------
Regards
Devesh R. Agarwal
Visit my aviation blog at http://aviation.deveshagarwal.com
Regards
Devesh
Bangalore Aviation
Enjoy life, destroy FUD
Local taxes
Property Tax
Boss, show me how to achieve this. I have a 1cr building and pay more than 1 lakh in property tax. :)))
But humour aside, we tend to forget that property transactions attract a high stamp duty, which is a direct import from our benovolent British rulers. Why get in to yearly tracking, when you can slam the natives once.
Also, my point of reference was TOTAL revenue generated for the state. Primarily sales tax/VAT.
Talking about tax structure in India, just a humourous annecdote :
TAX STRUCTURE IN INDIA
1) Question. : What are you doing?
Answer: Business.
Tax: PAY PROFESSIONAL TAX!
2) Question. : What are you doing in Business?
Answer: Selling the Goods.
Tax: PAY SALES TAX!!
3) Question. : From where are you getting Goods?
Answer: From other State/Abroad
Tax: PAY CENTRAL SALES TAX, CUSTOMS DUTY & OCTROI/ENTRY TAX!!
4) Question. : What are you getting in Selling Goods?
Answer: Profit.
Tax: PAY INCOME TAX!!
Answer: What profit ? Only loss this year.
Tax : PAY MINIMUM ALTERNATE TAX!!
5) Question. : Where you Manufacturing the Goods?
Answer: Factory.
Tax: PAY EXCISE DUTY!
6) Question. : Do you have Office / Warehouse / Factory?
Answer: Yes
Tax: PAY MUNICIPAL & FIRE TAX!
7) Question. : Do you have Staff?
Answer: Yes
Tax: PAY STAFF PROFESSIONAL TAX!
8) Question. : Doing business in Lakhs?
Answer: Yes
Tax: PAY TURNOVER TAX!
9) Question. : Are you taking out over 25,000 Cash from Bank?
Answer: Yes, for Salary.
Tax: PAY CASH WITHDRAWAL TAX!
10) Question. : Where are you taking your client for Lunch & Dinner?
Answer: Hotel
Tax: PAY FOOD & LUXURY TAX!
11) Question. : Are you going Out of Station for Business?
Answer: Yes
Tax: PAY FRINGE BENEFIT TAX!
12) Question. : Have you taken or given any Service/s?
Answer: Yes
Tax: PAY SERVICE TAX!
13) Question. : How come you got such a Big Amount?
Answer: Gift on birthday.
Tax: PAY GIFT TAX!
14) Question. : Do you have any Wealth?
Answer: Yes, somehow, I managed to save some money, after all these taxes
Tax: PAY WEALTH TAX!
15) Question. : To reduce Tension, you are taking the family to a Cinema ?
Answer: Yes.
Tax: PAY ENTERTAINMENT TAX!
16) Question. : Have you purchased House?
Answer: Yes
Tax: PAY STAMP DUTY & REGISTRATION FEE & THEN CORPORATION TAX!!!!!
17) Question. : How you Travel?
Answer: Taxi
Tax: PAY FRINGE BENEFIT TAX!!
Answer: Plane, Bus or Train
Tax: PAY SURCHARGE!!
18) Question. : Any Additional Tax?
Answer: Yes
Tax: PAY EDUCATIONAL, ADDITIONAL EDUCATIONAL & SURCHARGE ON ALL THE CENTRAL GOVERNMENT'S TAX!!!
19) Question. : Delayed any time Paying Any Tax?
Answer: Yes
Tax: PAY INTEREST & PENALTY!
20) INDIAN: can I die now??
Answer: YES. We will levy ESTATE TAX after you die, but wait........
... we are about to launch the FUNERAL TAX!!!
-----------------------
Regards
Devesh R. Agarwal
Visit my aviation blog at http://aviation.deveshagarwal.com
Regards
Devesh
Bangalore Aviation
Enjoy life, destroy FUD
Indian fuel prices highest in Asia Pacific - FIA
This article makes an interesting read about ATF prices in India ...
http://indiaaviation.aero/news/airline/3093/59/Indian-fuel-prices-highest-in-Asia-Pacific---FIA
taxation and proportionate returns
I really do not know how much of our taxes get invested back for Bangalore's benefit. For the moment, let's put that aside for our discussion. One thing I have always wondered about our country after seeing other developed countries is ..where do our taxes disappear to? We always seem to be a "1) we are poor 2) we do not have enough money 3)we are 3rd world" country. We are not receiving benefits proportionate to your taxation on an average state level/national level let alone Bangalore city level. Devesh, in my opinion, if the taxes that were diverted for the rest of the state had been wisely spent without corruption on infrastructure and development of other towns with proper planning we would not be seeing the kind of uncontrolled growth & congestion in Bangalore city today. Devesh, I prefectly agree with you that proportionately taxes need to be invested back in Bangalore. But, we first need to figure out where our taxes are going in the first place. One may refer to using the RTI as a tool to find out...but the corruption is so deep that RTI sometimes is rendered useless. Here is an example -
a) There was a patch of land in RT Nagar which was a playground and a hotbed of illicit activities but was meant to be a park as per zoning laws. After spending 16 years fighting in the court it was turned into a park which was maintained well initially but has fallen into disrepair now. An application under RTI act was filed and the name of the contractor plus details of the value of the contract for maintenance was obtained, but to this day the contractor has shown up only 5% of the promised time but still takes home our tax paying money. The civic authorities who are earning salaries payed through our taxes have to be pushed and prodded before they put in a visit to the park or act. The police, earning our tax paying salaries are nowhere to be seen patrolling the neighbourhoods. I am sure, you having lived in the US, have seen what active police patrolling really is.
b) A house is being built next to my inlaws home in Bangalore in gross violation of building laws. It is totally different from the plan that was submitted to the authorities. When the executive engineer known to my inlaws was summoned he sheepishly smiled and said "adjust maadkoli saar, mane thaane. Balcony solpa eekede bandre yen aithu". Again, the property tax/other taxes you, me and others are paying is going toward his salary and he is not doing his job.
Now, coming to the high taxes on ATF and petrol/diesel we are paying, where are they going? Ok, for arguments sake let's say the benefit has been the golden quadrilateral in some ways, good mysore road, Konkan railway..then..can you add anything else? I am not sure I saw a significant improvement in aviation infrastructure or road infrastructure at all as a result of those taxes NOR did I see an active aggressive alternate fuel technology task force initiative from the government. We have all seen the repeated bad state NH 48 in shiradi ghats ..a lifeline to the hinterland of our state from the port of Managalore. Regarding power, forget it, I studied in Manipal and we used to have extended power cuts in those interior areas in the 90s(they continue to do so today).
Indian ATF Prices even higher
BT,
The price of Rs. 37000 per KL in May 2007 is outdated. It is Rs. 75000 per KL today. And another 7% price hike is in the offing.
That is the focus of my article. All other fuels are price controlled by the government. So ATF becomes the one fuel the OMC's can overcharge and try and recover some of their losses.
-----------------------
Regards
Devesh R. Agarwal
Visit my aviation blog at http://aviation.deveshagarwal.com
Regards
Devesh
Bangalore Aviation
Enjoy life, destroy FUD
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