The Indian Aviation Industry valued at $16 billion is the 9th largest in the world and aims to become 3rd largest by 2020. With a 300 million middle class income group having disposable income to travel at least once a year by air and India’s growing economy that will support the traffic trends both in passenger and cargo, the Aviation Industry in India offers large untapped growth opportunities. The civil aviation market in India is on high growth trajectory. It will be interesting to see the positive changes in the Industry due to factors like National Civil Aviation Policy (NCAP), Foreign Direct Investment (FDI) policy in the Aerospace and Defence Industry and advancement in Maintenance, Repairs and Overhaul (MRO) policy.
For civil Aviation Industry, which is running short of capital, FDI will be very useful to improve regional connectivity and technological up-gradation. The National Civil Aviation Policy (NCAP) is India’s first ever policy, initiated by National Defence Academy (NDA) in 2016, which aims to achieve 300 million domestic passenger traffic by 2022 from 70 million in 2014-15. In consideration with the release of NCAP 2016, the Indian Government has allowed 100% FDI in the aviation sector in Greenfield projects and 74% FDI in Brownfield projects under the automatic route. This 100% FDI allowance in civil aviation will further support the EU-India civil aviation cooperation. Further, the implementation of GST law is expected to overcoming issues concerned to airlines like maintaining international standards and principles.
The International Air Transport Association (IATA) recently renewed the Public-Private Partnerships (PPP) in airport privatization by reducing taxes and putting efforts towards collaboration with international companies for sustainable air transport. The Government initiated PPP model is concentrated in developing Locomotive Non-Metro Airports, Greenfield Airports and Port Terminals. The Indian aviation market contributing $72 billion to the GDP provides 8 million jobs. IATA predicts that India will replace UK from being third largest aviation market in 2026 with 278 million passengers.
The Civil Aviation Policy contains various important aspect such as open-skies, code-sharing and FDI that support the industry’s growth. However, sustainable growth is necessary for the industry to achieve its potential. In this spirit, the Government of India recently came to a global agreement to establish a Carbon Offset and Reduction Scheme for International Aviation (CORSIA), which is a mechanism to facilitate sustainable growth. India was not a part of CORSIA initially, but is likely to participate in the near future.
Airlines around the world spend around 13-15% of their revenue towards Maintenance, Repairs and Overhaul (MRO). This amount makes MRO the second highest cost item after fuel. The MRO industry in India is at a very initial stage and 90% of the MRO expenditure is spent outside India in countries like Sri Lanka, Dubai, Singapore etc. Due to very few facilities of MRO in the country, India holds only 1% of world’s MRO Market and it is quite important for India to develop this industry as the MRO industry is estimated to grow at a CAGR of 10% till 2020. The new policies and reforms to encourage manufacturing facilities in India, will act as a catalyst to develop the MRO and Aerospace Industry. The Indian Government has provided facilities like zero service tax on MRO, services, easing the import of aircraft spare parts, exemption of the custom duty for maintenance tools and one year window restriction period for using duty free parts. This reform will be an attainable opportunity for companies willing to set up MRO facilities in India. 100% FDI allowance in aircraft maintenance and repair operations will further encourage foreign investors to invest in the MRO sector. This in turn will lead to more international and domestic airlines setting-up in the country. The civil MRO and defence MRO sector in India will be analyzed differently in terms of policies and governance of two sectors.
The rise in Indian civil aviation market is unprecedented with travelers each year increasing at 20% making India the fastest growing market globally. After the allowance of privatization in Greenfield and Brownfield airport development projects, the establishment of new airport projects in the cities like Hyderabad and Bengaluru and refurbishing of airports in New Delhi and Mumbai have started. The increasing passenger numbers and policies acting as an add-on in the sector will create more opportunities and attract more foreign investors and give them positive returns on their investments.
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