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Promising future of India’s aviation industry

By – Ramesh Vaidyanathan & Mansi Singh

India is the world’s fastest-growing aviation market and, as per International Air Transport Association, the country is expected to cater to 520 million passengers by 2037. With the aviation industry’s USD 30 billion contribution to India’s GDP, the domestic aviation market is projected to rank 3rd globally by 2024.

As the future of aviation in India looks extremely bright despite the COVID-19 headwinds, we have highlighted some recent developments that are likely to give a further push to the aviation sector in India.

  1. National Air Sports Policy

India has the potential to be among the leading nations in the world of air sports. It has a large geographical expanse, diverse topography and fair-weather conditions. Government of India aims to finalise the National Air Sports Policy (NASP 2022) and constitute the Air Sports Federation of India (ASFI) to make India a global hub for air sports. The draft policy was released on January 1, 2022 and the Government is examining the comments received from stakeholders. The policy will cover air sports such as aerobatics, aero modelling, ballooning, drones gliding, hang gliding and paragliding micro-lighting and para-motoring skydiving. For the year 2021-22, 10 million rupees has been allocated to promote air sports in the country. Once NASP 2022 is finalised and the proposed ASFI is constituted, the money will be disbursed for promoting air sports.

  1. International Financial Services Centre and GIFT City

The aircraft leasing and financing businesses operating from the International Financial Services Centre (IFSC) and GIFT city in Gujarat are provided off-shore status for financial services. Capital gains on the transfer of aircraft leased by an (IFSC) unit to a domestic company is eligible for 100% deduction. Further, royalty income on account of lease rentals paid to foreign entities is exempt from tax. Various other tax incentives are also provided for operating from the IFSC.

  1. Drones

The government has liberalised Drone Rules and released a PLI (production-linked incentive) scheme for drones. Under the PLI scheme, the incentive for a manufacturer of drones and drone components is as high as 20% of the value addition made by it. The value addition will be calculated as the annual sales revenue from drones and drone components minus the purchase cost of drone and drone components. The PLI rate has been kept constant at 20% for three years, with special treatment given only to the drone industry. In PLI schemes for other sectors, the PLI rate reduces every year. The rules aim to make India a global hub for research and development, testing, manufacturing and operation of drones. A Digital Sky Platform has been launched to regulate the entire gamut of activities pertaining to drone operations as well as to function as a single window online platform that ensures smooth functionality of the applications.

  1. Introduction of new airlines and revival of the old

Air India Disinvestment

In October 2021, the reputable Tata Group won the bid to acquire state-run Air India by offering approximately USD 2.4 billion for 100% ownership. The Air India acquisition has given the Tatas access to 4,400 domestic and 1,800 international airport slots at Indian airports and 900 slots at foreign airports, including London’s Heathrow and New York’s JFK.

Akasa Air

In October 2021, Akasa Air, a start-up airline, received a ‘no objection’ certificate to launch operations. Akasa Air is co-founded by billionaire stock trader, Rakesh Jhunjhunwala and former Jet Airways CEO, Vinay Dube. The airline plans to commence operations from mid-2022. The airline’s imminent entry has already triggered a battle for talent in the industry, which has been reeling under job losses and salary cuts.

Jet Airways Revival

India’s oldest private airline, Jet Airways, has begun hiring as part of its preparations for a re-entry. A consortium of Murari Lal Jalan and Florian Fritsch of Kalrock Capital plan to relaunch Jet Airways in the first half of 2022, after remaining grounded for three years following a restructuring process.

  1. UDAN Scheme

The Regional Connectivity Scheme or UDAN (‘Ude Desh ka Aam Nagrik’) is a vital component of National Civil Aviation Policy, 2016. The scheme aims to enhance connectivity to India’s unserved and under-served airports and is looking to make air travel affordable and accessible. Under the scheme, 10 airports were operationalised and more than 2.5 million passengers were flown in 2019. 100 airports would be developed by 2024 to support the UDAN scheme. It is expected that the air fleet number will go up from the present 600 to 1200 during this time. There are 403 operational routes and 65 airports under the UDAN scheme as on January 31, 2022.

  1. Maintenance, Repair & Overhaul (MRO) Services

The projected upsurge in air travel in India would require more aircraft usage and lead to an increased demand for MRO services. The Indian civil aviation MRO market presently stands at around USD 900 million and is anticipated to grow to USD 4.33 billion by 2025, increasing at a CAGR of about 14-15%. To incentivise the MRO industry, Goods and Services Tax (GST) rate has been reduced from 18% to 5% for domestic MRO services. The ‘place of supply’ for B2B MRO services was changed to the ‘location of recipient’, enabling Indian MRO facilities to claim zero-rating (i.e., export status) under GST laws on MRO services rendered to prime contractor/OEM located outside India. This has been an extremely crucial policy amendment as it will encourage global participation in the Indian aviation sector by allowing foreign MRO operators to subcontract MRO work to Indian entities without any extra tax liability.

Conclusion

While Covid-19 dealt a huge body blow, the future of Indian aviation seems extremely promising. Supportive policy framework, healthy competition amongst airlines and improved airport infrastructure will remain the key engines of this growth story.

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