Govt goes ahead to allow direct import of jet fuel by airlines

The sourcing of ATF through direct imports would lower the overall procurement cost for the airlines as sales tax varying from 4% to 30% in different states would be required to be paid only when local purchase was unavoidable

New Delhi: The government on Thursday moved forward to implement its decision to allow Indian carriers to directly import jet fuel, with the civil aviation ministry writing to the commerce ministry to take the necessary steps, reports PTI.

The decision was taken earlier this month at a meeting of a Group of Ministers on aviation, headed by finance minister Pranab Mukherjee, that the commerce ministry would permit direct import of aviation turbine fuel (ATF) “by or on behalf of Indian carriers directly as the actual user and on actual use basis,” officials said here.

The cash-strapped Indian carriers, particularly Kingfisher, have been demanding allowing of direct imports due to the high incidence of taxation on ATF by state governments which led its price to be 30% to 40% higher in India than in countries like Singapore, Japan, and those in the Gulf and in Europe.

However, the officials said 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 would lower the overall procurement cost for the airlines as sales tax varying from 4% to 30% in different states would be required to be paid only when local purchase was unavoidable, they said.

The decision would also bring down the cost of working capital to the airlines, as suppliers’ credit on lower interest rates would become feasible, the officials said.

The civil aviation ministry had sent the letter to commerce ministry yesterday, they said.

Most of the Indian airlines owe substantial amounts to oil companies on account of jet fuel.

Air India owes over Rs4,170 crore to public sector oil companies in unpaid jet fuel bills, according to figures tabled in Parliament, while all other private carriers together have dues worth over Rs2,000 crore.

Flight schedules of airlines like Air India and Kingfisher have been disrupted on several occasions in the past few months due to these oil firms stopping ATF supplies due to non-payment of dues.

Following frequent disruption to flights, government recently asked the oil PSUs to extend the credit period to 90 days.

Since the days of Praful Patel, successive civil aviation ministers, including incumbent Ajit Singh, have written to the chief ministers of all states to bring down the rate of sales tax on ATF in order to make ATF cheaper for the Indian carriers.

However, most of the states have not responded favourably, the officials said.

They said the revenue from sales tax on ATF contributes only 0.5% to 2% of the total sales tax collection of the states.

But for the airlines, it is almost 40% of the total operational cost, imposing a heavy burden on the beleaguered companies.

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Irrational behaviour

Sentiments continue to play a huge role in the Indian market

The market has been in rally mode, rising by nearly 17% for the last six weeks and the Sensex is currently past 18,000. Foreign institutional investors (FIIs) seem to have discovered India all over again, betting more than a billion dollars on India in a jiffy. The sentiment is extremely strong, despite all the news and opinion of gloom and doom—from scams in India to problems in Europe to slow growth in the US. The latest corporate earnings haven’t been too spectacular either, yet the markets shot up. Why? Well, for starters, the Indian market was mildly undervalued in late December. At a Sensex of 15,200 the PE was 13.4.

With the New Year came a massive liquidity boost which caused sentiment to change overnight. Ben Bernanke, the chairman of US Federal Reserve announced that interest rates will be low as long as it is needed. This caused hedge funds and FIIs to pour money in risky assets such as emerging markets. Since the Indian market had underperformed grossly in 2011, it bounced back the most. Additionally, the European Central Bank (ECB) pledged support to keep the European Union alive and keep Greece in the Euro. Further, the Reserve Bank of India (RBI) cut in CRR by 0.5% to 5.5%. Investors assumed that interest rate cycle has peaked in India.

So what happed to all the gloom and doom stories in the media, the continuous lament about the lack of reforms and poor governance? The fact is stock markets are always sentiment-driven. It takes a few good or bad news to turn the market around, for better or worse. We all are well aware of the lack of policy initiatives from the government and its talks of “reforms”. These things come up in a bear market and disappear when a rally starts. People simply forget them, especially since the media is always looking for cause & effect and never highlight that short-term market movements have nothing to do with long-term issues like reforms. From early December 1996, the Sensex rallied more than 60% till August 1997, on some hope or the other. It fell after the Asian crisis but rallied again 45% from December 1998 to April 1999, on another set of misplaced hopes. After all, it is not “reforms” or governance that caused the Sensex to rise 80% in 2003.

The fact is, after a deep decline, investors only need the flimsiest of excuses to buy. This is exactly what has happened this time—as it has happened many times in the past. People forget all the time and the media, which shapes popular opinion, have no truck with history. Hence the surprise all around.

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Mumbai world’s 2nd least expensive city, Delhi 4th

In the EIU survey, three of the four cheapest locations globally—Karachi, Mumbai, Tehran and New Delhi—are from the Indian subcontinent. Zurich has toppled Tokyo as the world’s most expensive city, although both of them have become relatively expensive in the past one year

New Delhi: A high rate of inflation may be pinching hard on day-to-day life of the people in the country, but a global survey has named two Indian cities—the financial hub Mumbai and the national capital New Delhi—among the four least expensive places across the world, reports PTI.

As per the worldwide ‘cost of living’ survey by the Economist Intelligence Unit (EIU), Mumbai is the second least expensive city globally, while New Delhi is ranked fourth.

Karachi in Pakistan has been named as the cheapest destination globally, while Zurich in Switzerland is the most expensive place across the world, as per the survey.

Inflationary pressures have figured among the key concerns facing the government as well as the public in India for many months now, although the rate of inflation has declined a bit in the recent past.

The country’s headline inflation fell to 6.55% in January 2012. It had stood at 7.47% in December 2011.

Despite the drop in inflation in January, finance minister Pranab Mukherjee had said the rate of price rise is “still not at acceptable level” and hoped for further dip.

Headline inflation was near double digit for most of 2010 and 2011. The apex bank hiked key policy rates 13 times, totalling 350 basis points between March 2010 and October 2011 to tame inflation.

In the EIU survey, three of the four cheapest locations globally—Karachi, Mumbai, Tehran and New Delhi—are from the Indian subcontinent.

“India has been such a target of labour outsourcing, relocation and FDI over the last decade,” EIU said.

“With cheap labour and land costs making India and Pakistan incredibly attractive to those bargain hungry visitors or investors willing to brave some of the security risks that accompany such low prices, especially in Pakistan,” it added.

All the four cheapest cities have retained their positions from the previous year’s list.

However, Zurich has toppled Tokyo as the world’s most expensive city, although both of them have become relatively expensive in the past one year.

“Both Japan and Switzerland have seen strong currency movements over the last few years which have made them relatively more expensive,” EIU said.

After Karachi, Mumbai, Tehran and New Delhi, the report has named Muscat, Dhaka, Algiers, Kathmandu, Panama City and Jeddah among the least expensive cities.

In the list of ten most expensive cities, Zurich and Tokyo are followed by Geneva, Osaka Kobe, Oslo, Paris, Sydney, Melbourne, Singapore and Frankfurt.

The survey compared over 400 individual prices across 160 products and services. They include food, drink, clothing, household supplies and personal care items, home rents, transport, utility bills, private schools, domestic help and recreational costs.

The main reason behind low cost of living in the Middle Eastern cities was the use of price controls and the pegging of currencies to the US dollar, the report said.

This year’s list interestingly features cities from the Asia Pacific region (including Australasia) in the ten most expensive cities while on the other hand, three of the four cheapest locations hail from the Indian subcontinent.

“Although Asian hubs are making their presence felt at the top of the cost of living stakes, another kind of Asian hub is making its presence felt at the bottom, EIU said.

Singapore’s presence in the top ten most expensive cities highlights a shift away from Western Europe towards Asian hubs, the report said.

“Cities from the Asia Pacific region (including Australasia) now make up half the ten most expensive,” EIU said adding Western Europe still accounts for 24 of the most expensive cities in the top 50, with 14 hailing from Asia.

Interestingly, despite the Eurozone weaknesses German and French cities are still relatively expensive with Paris and Frankfurt holding firm in the ten most expensive. Besides, Oslo, which was considered the world’s most expensive city only a few years ago, also sits towards the top of the ranking.

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