The Aviation sector in India currently contributes $72 bn to GDP. India has 464 airports and airstrips, of which 125 airports are owned by Airport Authority of India (AAI). These 125 AAI airports manage close to 78% of domestic passenger traffic and 22% of international passenger traffic. The hub of the nation’s aviation manufacturing industry is at Bangalore which has a 65% share of this economic sector. The government’s UDAN (regional connectivity scheme) is driving the growth of civil aviation and aviation infrastructure in India. The aviation industry supports $3.5 trillion (4.1%) of the world’s gross domestic product (GDP). If aviation were a country, it would rank 17th in size by GDP.
Aviation provides the only rapid worldwide transportation network, which makes it essential for global business. It generates economic growth, creates jobs, and facilitates international trade and tourism. The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India has become the third largest domestic aviation market in the world and is expected to overtake UK to become the third largest air passenger market by 2024.
Air India is India’s national flag carrier after merging with Indian in 2011 and plays a major role in connecting India with the rest of the world. IndiGo, Air India, Spicejet, GoAir and Vistara, AirAsia India are the major carriers in order of their market share. The Indian aviation industry is expected to report a net loss of Rs 21,000 crore in the current financial year (FY21) against a net loss of Rs 12,700 crore in FY20 due to lower revenues and high fixed costs, according to ICRA. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2020. The expenditure of Indian travellers is expected to grow up to Rs. 9.5 lakh crore (US$ 136 billion) by 2021. As per the proposals of Budget 2021, aircraft leasing companies are now exempt from capital gains and tax exemptions have been given on aircraft lease rentals paid to foreign lessors. The Budget has also announced an ambitious plan to monetise airports across tier 2 and tier 3 cities in the country.
The Union Budget announced for the Financial Year 2021-22 comes with several positive measures for the aviation industry in India. These measures range from tax incentives and custom duty reduction for promoting aatmanirbharta, to asset monetisation and disinvestment to mobilise resources for new infrastructure development. Overall, the budget proposals are aimed at creating opportunities for strengthening the aviation eco-system in the country and developing India as an aviation sector manufacturing hub.
Major highlights of the Union Budget 2021 for the aviation industry include:
- Tax incentives for aircraft leasing and financing
The Government is committed to make the International Financial Services Centre (IFSC) in GIFT City a global financial hub. In addition to the tax incentives already provided, the current budget proposed more tax incentives which includes (i) tax holiday for capital gains incomes of aircraft leasing and financing company, (ii) tax exemptions for aircraft lease rentals or royalty paid to foreign lessor, (iii) tax incentive for re-location of foreign funds in IFSC and (iv) tax exemptions to investment division of the foreign banks located in IFSC.
These tax exemptions are a major boon to lessors operating from IFSC. These would help in establishing a vibrant aircraft leasing and financing environment in India, besides offering better terms to Indian and foreign carriers. These measures comes on the back of a series of initiatives undertaken by Ministry of Civil Aviation since 2019 to create an aircraft leasing and financing ecosystem in GIFT (Gujarat International Financial Tech) city of India.
- Custom duty benefit
In the budget proposal, Customs duty has been reduced from 2.5% to 0% on aviation sector components or parts, including engines, for manufacturing of aircraft by Public Sector Units of Ministry of Defence. This measure will help grow the aviation industry in the country by reducing cost of inputs for domestic manufacturing and thus promote aatmanirbharta.
- Asset Monetisation through PPP model
The budget proposed monetisation of the next lot of airports for operations and management concession. Other core infrastructure assets that will be rolled out under the Asset Monetization Programme are AAI Airports in Tier II and III cities. The Airport Authority of India is working on the next round of privatization in which 06-10 airports will be included. Six airports have already been awarded to the successful bidder and the concession agreements have been signed. Proceeds from this step will help the Ministry of Civil Aviation to complete the goal of building 100 new airport by 2024.
- Development of health system capacities at airports under the Atma Nirbhar Swasth Bharat Yojana
Under a new centrally sponsored scheme, PM Atma Nirbhar Swasth Bharat Yojana, Union budget 2021-22 proposes development of health systems capacities in the country which also includes the aviation entry points. Under this program Public Health Units will be strengthened at 32 airports. This program will facilitate smooth movement of pharmaceuticals through air across India as well in other parts of the world.
- Disinvestment and Strategic Sale
Through budget 2021, the government has reiterated its commitment of disinvestment of Air India and PawanHans in 2021-22. The process of strategic sale of Air India is underway. The Ëxpression of Interest” EOI have been received. The Transaction Adviser is scrutinizing the EOIs. The PIM for the sale of Pawan Hans has also been issued. Besides, the PIM for Air India Airports Services (Ground handling) is under preparation.
- Expansion of scope for Krishi Udaan in convergence with Operation Greens:
To boost value addition in agriculture and allied products and their exports, the scope of ‘Operation Greens Scheme’ that is presently applicable to tomatoes, onions, and potatoes, will be enlarged to include 22 perishable products. Krishi Udaan Scheme stands converged with Operation Greens through air freight subsidy of 50% for the agri-perishables of NER States and 4 Himalayan States/UTs. The expansion of product-coverage will boost the Krishi Udaan Scheme and improve air cargo transportation from these States.