Budget 2024 Proposes Customs Duty Exemption on Aircraft Components to Boost Aviation Sector
In a significant move aimed at bolstering India's aviation industry, Finance Minister Nirmala Sitharaman announced during her budget speech on Sunday a proposal to exempt basic customs duty on imported components and parts required for the manufacture of civilian, training, and other aircraft. This strategic decision is expected to provide a substantial boost to the aviation sector by reducing input costs and enhancing competitiveness.
Details of the Customs Duty Exemption
Currently, customs duty on aircraft components ranges from 2.5% to 15%, with some items already enjoying zero duty. The new exemption will apply broadly to components and parts, including engines, used in the production of civilian aircraft. Experts believe this measure could encourage existing manufacturers to expand their operations and attract new companies to enter the market.
Krishnan Agarwal, executive director at Deloitte India, emphasized the impact, stating, "Extension of customs duty exemptions on aircraft engines, parts and raw materials till 2028 will significantly reduce costs and strengthen the 'Make in India' aerospace ecosystem. The measure lowers operating expenses, enhances the global competitiveness of Indian MROs, and unlocks new opportunities in the aviation sector."
Impact on Major Aviation Projects
The timing of this proposal aligns with several high-profile aviation initiatives in India. For instance, the Adani Group and Brazil's Embraer are currently in discussions to manufacture commercial aircraft in India. Embraer plans to import aircraft components into the country, as confirmed when they signed a partnership agreement with Adani last month.
Similarly, state-owned Hindustan Aeronautics Ltd has been negotiating with Russia's UAC to locally manufacture the SJ100 regional aircraft. Both projects stand to benefit significantly from reduced costs of aircraft components and supplies, potentially accelerating their development and implementation.
Boosting India's MRO Ambitions
The budget proposals coincide with India's aspirations to establish itself as a global hub for aircraft maintenance, repair, and overhauling (MRO) operations. This goal is particularly relevant as major Indian airlines—including IndiGo, Air India, and Akasa—plan to increase their fleet sizes by at least 30% over the next two years. Currently, India accounts for 10% of global MRO work, and this exemption could help expand that share.
Ashish Chhawchharia, partner and aviation industry leader at Grant Thornton Bharat, explained, "These measures lower input costs across the aviation value chain, making aircraft acquisition and upkeep more affordable while strengthening domestic MRO capability. With passenger traffic projected to reach 665 million annually by FY31, cost efficiency and local capacity are critical."
Economic Benefits and Industry Reactions
Industry experts highlight that the duty exemption will cut input costs for the aviation sector, benefiting both manufacturing and MRO activities. Kinjal Shah, senior vice president and co-group head for corporate ratings at ICRA Ltd, noted, "This will help lower the aircraft purchase cost for airlines." By reducing maintenance expenses through cheaper spare parts and tools, carriers can improve fleet economics and allocate more capital for expansion.
Sai Aravind Melligeri, executive chairman and CEO of Aequs Ltd, a commercial aerospace component manufacturer supplying to giants like Airbus and Boeing, added, "With basic customs duty waiver, Indian arms of OEMs can bring in components from overseas and sell in India to their partners here. This will bring down costs."
Tax Implications and Budget Allocation
It's important to note that all imports of aircraft components and engine parts already face a uniform integrated goods and services tax (IGST) of 5%, implemented in 2024. This IGST allows companies to claim it back as input tax credit and is separate from basic customs duty, continuing to apply even when customs duty is zero, according to tax experts.
In terms of budget allocation, the civil aviation ministry saw a reduction to ₹2,102.87 crore for FY27, down from the previous year's estimate of ₹2,400 crore, which was revised to ₹2,055.49 crore. Despite this cut, the customs duty exemption is viewed as a targeted measure to stimulate growth in the aviation sector through cost reductions and increased investment.
Overall, this budget proposal underscores the government's intent to strengthen India's aviation ecosystem, attract global partnerships, and position the country as a key player in the global aerospace industry.
