Would a Mumbai-New Delhi or Bengaluru-New Delhi flight ticket be cheaper after the Union Budget 2019-20? The answer is no. But, the Indian aviation industry, which has been flying through turbulence, has some reason to cheer. And that’s only if the finance minister’s announcements are acted upon.
As India is on the road to becoming the third largest domestic aviation market globally, the Indian government thinks that the time is ripe for aircraft financing and leasing activities in the country. World over, airlines purchase aircraft and then sell them to lessors from whom they then lease the aircraft back.
“This is critical to the development of a self-reliant aviation industry, creating aspirational jobs in aviation finance, besides leveraging the business opportunities available in India’s financial special economic zones (SEZs), namely, International Financial Services Centre (IFSC),” said finance minister Nirmala Sitharaman in her maiden Budget speech. “Government will implement the essential elements of the regulatory road map for making India a hub for such activities,” she added.
While it's just an announcement, Manish Agarwal, leader-infrastructure, PwC India, said “This is the right direction to head in as there is a serious need for changing the rules to make leasing of aircraft easier and less expensive.”
Sitharaman also said that the government would examine “further opening up of foreign direct investment (FDI) in aviation”. At present, foreign airlines are allowed to own up to 49% stake in an Indian airline. She further added that the government would re-initiate the process of Air India’s divestment, which turned out to be a damp squib last year.
“In general, opening up of FDI would be a good thing as there is capital that is keen to invest in the aviation sector,” said Agarwal. For starters, Jet Airways and Air India could potentially find suitors if the current FDI cap in aviation were to be lifted.
Furthermore, the government is keen on creating an ecosystem to support MRO (maintenance, repair, and overhaul) services for the aviation industry. “It is proposed to leverage India’s engineering advantage and potential to achieve self-reliance in this vital aviation segment,” said Sitharaman. In this regard, she added that the government would adopt suitable policy interventions to create a "congenial atmosphere” for the development of the MRO sector in the country.
“We welcome the government’s intent to adopt suitable policy interventions to stimulate the MRO industry in India. We look forward to much-needed government support that will enable the local MROs to compete with foreign ones which enjoy a more favourable import tax regime,” said Palash Roy Chowdhury, chairman, AMCHAM Civil Aviation Committee and managing director – India, Pratt & Whitney. “This will not only boost the local MRO industry but also contribute to the government’s tax revenues.”