NEW DELHI: Recent media articles have reported that the Ministry of Commerce & Industry has recommended a reduction in per passenger allowance of import of liquor at arrival Duty Free stores at all Indian airports, along with a complete ban on sale of cigarettes through Duty Free stores. Such a move will have disastrous effects on the Indian Aviation Industry across all stakeholders including airports, airlines, passengers and Duty-Free operators.
has vehemently opposed the proposed move to reduce liquor allowance from 2
litres to 1 litre and to do away with import of cigarettes presently one carton
of 100 sticks.
APAO, it will harm the entire aviation ecosystem comprising of airports,
airlines, duty free operators and AAI and does not help in any way in
improvement in balance of payments. Share of import of liquor for sale to
arrival passengers in total import is miniscule i.e. 0.0213%. Even doing away
with entire imports will not serve any purpose. The same ministry is
recommending reduction in import duty on gold to mitigate illegal import. With
the same logic the proposal will enhance smuggling of imported liquor and
encourage passengers to buy more at Departure Airports globally, resulting in
higher Foreign Exchange outflow.
argument given by the APAO is that liquor import is within the overall limit of
Rs. 50,000 available to passengers and hence any reduction in liquor quota will
result in shift to import of other items thereby making the entire exercise to
improve balance of payments ineffective.
elaborated that present limit of Rs. 50000 was Rs. 25000 in the year 2004.
Considering Rupee depreciation vis-à-vis USD, of 162% during the said period,
in real terms limit is reduced by 23% which will further reduce considering USD
charges alone are never sufficient to cover the cost of developing and
operating airports and it is non-aeronautical revenue streams such as Duty Free
which subsidise these costs. In the present regime of
hybrid or shared till mechanism adopted by AERA as per NCAP 2016 increase in
non-aeronautical revenue leads to lower aeronautical tariff, thereby passing
the benefit to the passengers. At most Indian
airports, Duty Free revenues make up 15-20% of the total non-aero revenues and
sales of liquor and cigarettes together account for over 75-80% of overall Duty
Free sales and to make up the revenue loss on account of
these new restrictions, the Aeronautical Charges will have to increase which
will have to be borne by airlines and passengers. It is estimated that the Aero
Charges will go up by at least around Rs. 200 crores annually across India
which will have an impact on ticket prices and may even impact the growth in
passenger traffic which is already extremely subdued.
The revenue loss will
also impact the Indian airports financial performance, their rating, ability to
raise funding for future expansion and could potentially lead to NPAs with
reduction of duty-free allowance will also adversely impact Airports Authority
of India (AAI) which will not only lose revenue from the airports it operates
but also from the revenue share from Delhi and Mumbai airports. It is estimated
that AAI would lose over Rs. 330 crores (Rs. 180 Crores from its
operations and Rs. 150 crores due to reduction in revenue share payments from
DIAL and MIAL). This will reduce AAI’s ability to develop airports in remote
and rural areas, upgrade airport infrastructure and regional connectivity which
is hallmark of the NCAP 2016.
GoI after more than a decade has successfully privatized six AAI airports, won
by an Indian company and one greenfield airport at Jewar which was won by an
international operator. The basis for bidding was per passenger fees, which was
primarily expected to be paid out of growth in Non-Aero revenues. If Non-Aero
revenues are restricted by an act of government, the new operators will find
the airports unviable and may even renege on their contracts. Any future
privatization planned by the government will not succeed.
accounts for majority of sales of duty-free operators. The proposed move will
make their operations unviable due to firm commitments towards fixed fee and
fixed expenses to be met out of lower revenue base.
estimated that 8,000 – 10,000 staff may lose their jobs directly and indirectly
by virtue of this decision as there will be layoffs in sales force, logistics,
warehousing, transportation, shipping and finance.
restrictions on liquor and cigarette sales at Indian Duty-Free outlets will
induce passengers to buy liquor & cigarettes from foreign countries, and
the shift in buying from foreign airports shall kill Indian duty-free industry.
At the same time, the restrictions will act as incentive for import of these
goods through illicit channels and will result in a herculean task for Customs
Authorities to check each and every passenger and there will be shift in focus
from checking contraband import gold, narcotics, etc. to liquor.
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