Budget 2019: Government Proposes a Hike in Aviation FDI, Aircraft Financing and Leasing in the Country

Budget 2019 may have some panacea for the financially crippled airlines like Air India and Jet Airways. The finance Minister Nirmala Sitharaman said that the government intends to increase the limit of the Foreign Direct Investment (FDI) for the aviation sector from the current 49%. Besides, the government will also take the initiative to start aircraft leasing and aviation finance from the Indian shores.

The government will examine suggestions of further opening up of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders, Minister said.

As the world’s third-largest domestic aviation market, the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores. This is critical to the development of self-reliant aviation industry, creating aspirational jobs in aviation finance, besides leveraging the business opportunities available in India’s commercial special economic zones (SEZs), namely, International Financial Services Centre (IFSC), she added.

The government will lay the foundation for the activities by forming the necessary regulatory framework. Targeting to create a self-reliant aviation industry, the government will also enable a congenial atmosphere for maintenance, repair and overhaul industry (MRO industry).

Leasing aircraft and availing maintenance from abroad are the two factors that increase the cost for airlines. Having a domestic option to address them will benefit the airlines. Besides the benefits to the industry, the MRO industry will also provide the government with some tax revenues. However, the Minister did not address the reduction of taxation on aviation turbine fuel that accounts for nearly 35-50% of the airline’s costs.