NEW DELHI, India (Reuters) --Steep air fares in India could fall by up to 20 percent after the Indian government scrapped an air travel tax and cut a duty on aviation fuel.
The move could boost prospects for the aviation and tourism industries.
India's coalition government, in a series of price-reducing measure ahead of elections later this year, announced the scrapping of the 15 percent inland air travel tax and a cut excise duty on aviation fuel by half to eight percent.
The tax cuts will make air travel more affordable in a country with a billion plus population and help lure travelers using deluxe trains.
"We are thrilled, since this will reduce ticket prices by at least 20 percent," Subhash Goyal, the president of Indian Association of Tour Operators and the head of the country's biggest wholesale travel firm, told Reuters.
"The high air fares have always been a bottleneck for the domestic tourism industry," he said, adding the cuts will also help reduce the gap between domestic and international air fares.
Since cash-strapped federal and state government impose steep taxes on air travel and aviation fuel, air fares on some local routes are 20 percent higher than fares to neighboring countries that are much further away.
Data on airfares, posted on the Web site of state-run Indian Airlines, shows that the scrapping of the air travel tax will results in a 12.7 percent decline in the price of an economy class ticket between Delhi and Bombay to 5,874 rupees ($129) from 6,725 ($148).
Similarly, the airfare between Bombay and Bangalore will decline to 4,604 rupees from 5,265.
Civil aviation minister Rajiv Pratap Rudy said in a statement that making air travel more affordable was Prime Minister Atal Behari Vajpayee's vision and the cuts were a long-standing demand of the airlines.
The cut in excise duty on aviation turbine fuel also help reduce prices but its impact is not likely to be as large since sales tax on fuel continues to remain high.
Fuel makes up 30 percent of the operating cost of an Indian airline. The fuel currently bears a 16 percent excise duty and an average of 25 percent, which inflates its base price by 45 percent.
India's more than a decade-old economic reforms program has triggered robust growth in several sectors like telecoms, has left the aviation industry largely untouched.
Air travel in India grew eight percent in the first half of this fiscal year to September after two poor years.
In December, a key government panel recommended a string of changes to the aviation industry including cutting taxes, allowing greater foreign investment and privatizing two state-run carriers to boost growth, investment and the quality of services.
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