India approves Rs 10,000-crore support for aviation fuel as Iran war hits airlines – Firstpost

The Union Cabinet on Wednesday approved a Rs 10,000 crore plan to subsidise aviation fuel.

A statement following the Cabinet meeting chaired by Prime Minister Narendra Modi said this would be a one-time budgetary support to oil companies, which will pass on the benefits to Indian airlines for their domestic as well as international operations.

The budgetary support will be in the form of interest-free advances to oil companies, the Cabinet said.

In recent weeks, major Indian carriers such as IndiGo and Air India have been forced to curtail operations because of unsustainable costs. In addition to rising aviation fuel prices,
Indian airlines have also been hit by the closure or disruption of West Asian airspace, which has forced them to take longer routes to destinations in the West. As a result, flights to Europe and North America have been affected the most.

While the Centre has capped aviation fuel prices for now, the Cabinet noted in its statement that this is not a sustainable arrangement in the long run, as oil companies continue to procure fuel at elevated costs and continued capping would lead to mounting losses.

How the aviation fuel stabilisation plan will work

Under the scheme, oil companies will draw on these interest-free advances to recover the
war-induced additional cost of aviation fuel and sell it to airlines at a benchmark price set under the scheme, the Cabinet said.

This would ensure that oil companies are compensated for losses incurred by selling aviation fuel to airlines at the benchmark rate instead of the prevailing war-induced higher rate even as they continue to purchase fuel at elevated costs.

The Cabinet said oil companies will repay the government the support amount once aviation fuel prices stabilise in the international market.

For now, the plan will run for 36 months and may be extended based on the situation.

The move is also aimed at deterring an economic slowdown and spurring growth as stable airline operations would help sustain employment across airlines, airports, ground handling agencies, cargo operations, travel agencies, hospitality, and logistics sectors. It is also expected to have spillover effects on the tourism and hospitality sectors.