By Bhanvi Arora
India will soon announce a policy—including deciding on a Goods and Services Tax rate—on the use of bio-fuel in aviation to reduce oil imports, said Union Minister Nitin Gadkari.
“The Prime Minister (Narendra Modi) has given primacy to bio-fuels and alternative fuels,” the Union minister for road transport and highways said today in Delhi, where India’s first bio jet fuel-powered flight, a Bombardier Q400 airplane operated by low-cost carrier SpiceJet Ltd., landed after taking off from Dehradun.
“Today, the aviation sector has experimented with a bio jet fuel flight. We will work on a manufacturing policy for bio-fuel,” Gadkari said, adding that a Cabinet note in this regard will soon be moved.
The flight’s fuel—comprising a mix of 25 percent bio-fuel made from jatropha and 75 percent aviation turbine fuel—was developed by Indian Institute of Petroleum. SpiceJet, in a statement, said the bio jet fuel has the potential to reduce carbon footprint by up to 15 percent.
The government had earlier this year approved a national policy for bio-fuel, which allows blending of ethanol produced from damaged foodgrain, rotten potatoes, corn and sugarbeet with petrol. The move is estimated to save Rs 4,000 crore in the current fiscal alone.
“This (the flight) was a technology demonstration,” Ajay Singh, chairman and managing director of SpiceJet, said. “We wanted to show the technology for bio jet fuel exists for which, we believe, there would be greater commercial interest.”
Commercial interest may be more than forthcoming, given the distress most of India’s flight operators find themselves in.
India’s aviation market, which is the world’s fastest growing, is entwined in a tariff war even as more and more people take to the skies. Fuel accounts for nearly 40-50 percent of the operating costs of airlines. The recent rally in crude prices have only increased their burden. The aviation sector has appealed to the Goods and Services Tax Council to include aviation turbine fuel under its ambit.
Jet Airways India Ltd., for instance, is saddled with debt and had to even defer its earnings for the quarter ended June, in part due to surging fuel prices. It’s now mulling a turnaround plan when its board meets on Aug. 27.
That’s not all. The profit of Interglobe Aviation Ltd.—the parent of India’s largest airline, IndiGo—for the quarter ended June was nearly wiped out due to rising fuel costs and competitive fares.
“Given the social benefits of bio jet fuel such as increasing farmers’ income who grow the feedstock for this fuel, the government would find a way to make it tax-free,” Singh said.
He sought a policy framework that will reduce the cost of the new fuel. “With bio jet fuel, we can realise cost benefits of up to 30 percent.”
Bhanvi Arora is a correspondent at BloombergQuint.