If the government wants to make any changes in the aviation sector, it must learn from the lessons of 2024. This year was a wake-up for the government.
The sector is at a crossroads, grappling with poor infrastructure, security lapses, and heavy reliance on overseas services—factors that impact operational efficiency and ultimately hinder growth. ICRA’s recent report predicted that the country’s civil aviation sector will report a Net Loss of INR 2,000 to 3,000 crores for the current and next fiscal year. This is due to the ongoing supply-chain challenges and engine issues that are expected to continue for some time.
Budget 2025, despite receiving a reduced budget in the first full Modi 3.0 budget, has the potential to improve flight experiences. It could address these challenges through strategic investment, policy reforms, as well as incentives for domestic manufacturing, under the “Make in India initiative”.
India’s population of 1.4 billion is so large that the number of airports available falls far short of the demand. India, the fifth-largest country in the world, has just 149 operating airports. This means that each airport serves on average 94 lakh people.
It is not surprising that the UDAN (Ude desh Ka Aam Niagrik) scheme has failed to take off. Moreover, a drastic cut in funding for the Regional Air Connectivity Scheme, UDAN, from INR 850 to INR 502 has raised concerns.
Many Tier 2 cities and Tier 3 cities lack operating airports. Existing ones are often outdated and have inadequate runways, passenger amenities and air traffic management systems. These deficiencies limit the capacity of airports to handle increasing passenger numbers. They create bottlenecks, and affect travel convenience.
Smaller airports, regional airlines, and regional airlines face many challenges, including high operating costs, seasonal fluctuations in demand, and limited passenger traffic. Profitable operations are difficult for these smaller airports. Moreover, many regional airports still need to be fully built out, which delays the enhancement in regional connectivity under the UDAN Scheme.
Budgetary allocations of significant amounts are needed to bridge these gaps. This includes modernising airport terminals and expanding runways as well as upgrading security systems.
Kinjal Sha, Senior Vice President of ICRA Limited and Co-Group Leader of Corporate Credit Ratings, said:
“The budget is likely to focus on the setting up of new airports and increasing the existing airport capacity at key airports to address the airport infrastructure constraints that airlines face and to improve connectivity to the underserved/unserved destination to boost tourism.”
To ensure seamless travel, it is also important to improve intermodal connectivity between airports, public transport systems and other modes of transport.
Vineet Agarwal is the Managing Director of Transport Corporation of India. He has highlighted the importance of modernisation for the Indian aviation industry. “Budgetary allotments for improving intermodal connectivity at airports, seaplane ports, special helipads, and other locations will help improve the passenger transit,” said Agarwal.
Digi-Yatra and other advanced technologies, such as automated air traffic management systems, will also enhance passenger comfort and improve operational efficiency.
The Make in India program has focused mainly on electronics and clothing, with little attention paid to civil aviation. The government wants to bring this sector up to par with the railways. Maintenance services are also lacking in India, despite the fact that manufacturing aviation parts and even assembling them is almost non-existent.
It would be unfair for anyone to claim that no steps have been made. Last year, by rationalising GST and allowing 100% foreign direct investment (FDI), the government took steps towards strengthening this sector. These measures are insufficient.
A renewed Production Linked Incentive Scheme (PLI), coupled with public-private partnerships, could act as a catalyser for achieving self-reliance within the aviation sector.
The absence of robust MRO services at home contributes to operational efficiency and costs that are significant, which further impacts profitability. Vineet agarwal claims that India only represents 1% of the global MRO sector, with 90% of MRO needs being met overseas.
“Key areas for Make-in-India would be aircraft components, ground support equipment, avionics, defence aircrafts and sustainable aviation fuel production…This is a burgeoning area and in the long run, it will help in reducing operational costs for the sector and aid in creation of premium jobs,” he said.
It is impossible to overstate the importance of localised manufacturing, particularly given India’s growing aviation needs. India is on its way to becoming the third largest buyer of planes in the world with over 1,000 orders. This alone could create demand for 200–300 maintenance checks annually, which would significantly reduce costs if handled domestically.
Kinjal said that the Budget could be a focus on the MRO sector, and on building the infrastructure needed to promote the aircraft lease business in India.
Like the Indian defense MRO sector, especially that of Tata & Lockheed Martin, investing into indigenous manufacturing and MRO capability for civil aviation can save billions and create thousands of jobs. A report by Deloitte in 2021 stated that a strong MRO sector within India could save India $2 billion and create 90,000.
This would not only reduce India’s dependence on global supply chains but also its vulnerability to disruptions due to geopolitical tensions and economic uncertainty.
Inclusion of Aviation Turbine Fuel under GST is one of the top priorities for the aviation sector. “The Indian Aviation Industry expects a rationalisation of the duty structure for aviation turbine fuel (ATF), as well as the inclusion of the same within GST,” said ICRA’s Shah.
ATF is currently subject to varying VAT rates in each state, ranging from 1% to 30%. This fragmented taxation system increases the operating costs of airlines, which ultimately results in higher airfares for passengers. GST rationalizing tax structure can bring in much needed cost efficiency and price stability.
ATF costs are responsible for 40-50 per cent or more of an airline’s operating expenses. This is a major factor when determining ticket prices. All eyes are on Nirmala Sitharaman’s upcoming Budget for infrastructure, GST and putting India on a map of MRO.