Budget: Centre proposes to increase FDI in aviation

Finance Minister Nirmala Sitharaman on Friday proposed to increase the foreign direct investment in domestic air carriers from the existing 49%, a move that may help the government find buyers for the troubled Air India.

Delivering her maiden budget speech, Nirmala also spoke about making India a hub for leasing aircraft and aviation finance, a move that would help the country save on precious foreign exchange.

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

She also announced that the government will reinitiate the process of strategic disinvestment in Air India as well as other central public sector undertakings (CPSUs)

“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,” the finance minister proposed making the International Financial Services Centre a hub for such activities.

Nirmala also spoke of leveraging India's potential in engineering to develop the maintenance, repair and overhaul industry for the aviation sector.

“For providing an enabling ecosystem for growth in India of Maintenance, Repair and Overhaul (MRO) industry, it is proposed to leverage India’s engineering advantage and potential to achieve self-reliance in this vital aviation segment,” she said.

Nirmala said the government will adopt suitable policy interventions to create a congenial atmosphere for the development of MRO in the country.

Indian airliners service their aircraft at MRO hubs in foreign countries as high taxes within the country leads to increase in cost of airlines.

However, the government was mum on the key demand of the aviation industry – reduction in taxes on the aviation turbine fuel that accounts for at least 35% of the cost of running an airline.