The time is ripe for India to enter into aircraft financing and leasing activities from Indian shores: Finance Minister

Development of a self-reliant aviation industry, relaxation in FDI in the civil aviation sector and an enabling ecosystem for growth of MRO industry come wrapped in the 2019 Union Budget's red 'bahikhata'

July 5, 2019 By Ayushee Chaudhary Photo(s): By PIB
The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman departs from North Block to Rashtrapati Bhavan and Parliament House, along with the Minister of State for Finance and Corporate Affairs, Shri Anurag Singh Thakur and the senior officials to present the Union Budget 2019-20, in New Delhi on July 5, 2019.

Giving a break to the British Era norm of presenting the Union Budget in a briefcase, the Finance Minister carried the budget documents of her maiden budget wrapped in a Budget bahikhata (ledger), a red cloth with a ribbon, adorning the national emblem. With this Nirmala Sitharaman, country's first full-time female finance minister, became only the second women in independent India to present the Union Budget.

Among several other expected reforms and subjects that were awaited to be discussed in the Union Budget of 2019, the aviation industry was one important one. Right now, the Indian Aviation Industry is not only one holding a lot of future promises but is also going through turbulent times. Significantly in this scenario, the Finance Minister announced that India will enter into aircraft financing & leasing.

"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. This is critical to the development of a self-reliant aviation industry, creating aspirational jobs in aviation finance, besides leveraging the business opportunities available in India's financial Special Economic Zones (SEZs), namely, International Financial Services Centre (IFSC)," said Sitharaman during her speech.

"The government's proposal to introduce aircraft financing and leasing will bring down the costs for carriers hopefully. Also, the announcement of identifying and developing 17 iconic tourism sites will boost domestic air travel demand," said Mr. Sunil Bhaskaran, MD & CEO, AirAsia India.

This marked the first time a Finance Minister talked about aircraft financing & leasing in the budget and the move is expected to aid aircraft carriers in inducting planes in their fleet.

"The government's proposal to introduce aircraft financing and leasing will bring down the costs for carriers hopefully. Also, the announcement of identifying and developing 17 iconic tourism sites will boost domestic air travel demand," said Mr. Sunil Bhaskaran, MD & CEO, AirAsia India.

She also added that the Central Government will invite suggestions for further opening up of Foreign Direct Investment (FDI) in aviation sector in consultation with all stakeholders and 100 per cent FDI will be permitted for insurance intermediaries.

The Budget announcement to further relax FDI in the civil aviation sector is likely to help the government in locating buyers for Air India as well as Jet Airways.

Palash Roy Chowdhury, MD, Pratt & Whitney – India said, "We welcome the government's intent to adopt suitable policy interventions to stimulate the MRO industry in India. We look forward to much needed government support that will enable the local MROs to compete with foreign ones which enjoy a more favourable import tax regime. This will not only boost the local MRO industry but also contribute to the government's tax revenues."

"Strategic disinvestment of select CPSEs would continue to remain a priority of this Government. In view of current macro-economic parameters, Government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more CPSEs for strategic participation by the private sector," Sitharaman said.

FDI inflows into India have remained robust despite global headwinds. Global FDI flows slid by 13% in 2018, to US$ 1.3 trillion from US$ 1.5 trillion the previous year – the third consecutive annual decline, according to UNCTAD's World Investment Report 2019. India's FDI inflows in 2018-19 remained strong at US$ 64.375 billion marking a 6% growth over the previous year.

Sitharaman further said, "For providing an enabling ecosystem for growth in India ofMaintenance, 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. Government will adopt suitable policy interventions to create a congenial atmosphere for the development of MRO in the country."

Palash Roy Chowdhury, MD, Pratt & Whitney – India said, "We welcome the government's intent to adopt suitable policy interventions to stimulate the MRO industry in India. We look forward to much needed government support that will enable the local MROs to compete with foreign ones which enjoy a more favourable import tax regime. This will not only boost the local MRO industry but also contribute to the government's tax revenues."

Higher aviation turbine fuel, lack of infrastructure at airports, low capacity utilisation in flights to small cities, etc. are some reasons due to which the aviation sector in the country isconfronting blows. Many experts from the aviation market were hoping for some respite on the aviation turbine fuel as it consists of 30-40 per cent of the total cost of an airline, but this went unaddressed in the budget.

Defence sector in Budget 2019

With the buzz and focus around national security, defence industry was expected to be given a better share in the Union Budget 2019. However, while there has been a reduction in customs duty, the defence budget did not see a significant alteration. Barring the separate defence pension outlay of 1.12 lakh crore, the defence budget stands around 3.18 lakh crore. "Defence has an immediate requirement of modernisation and upgradation. This is a national priority. For this purpose, import of defence equipment that are not being manufactured in India are being exempted from the basic customs duty," said the Finance Minister.

Aerospace in Budget 2019

"India has emerged as a major space power with the technology and ability to launch satellites and other space products at globally low cost. Time has come to harness this ability commercially. A Public Sector Enterprise viz. New Space India Limited (NSIL) has been incorporated as a new commercial arm of Department of Space to tap the benefits of the Research & Development carried out by ISRO. The Company will spearhead commercialization of various space products including production of launch vehicles, transfer to technologies and marketing of space products," Sitharaman added stressing to tap the benefits of ISRO through its many upcoming missions.

10-point Vision for the decade

  • Building Team India with Jan Bhagidari: Minimum Government Maximum Governance.
  • Achieving green Mother Earth and Blue Skies through a pollution-free India.
  • Making Digital India reach every sector of the economy.
  • Launching Gaganyan, Chandrayan, other Space and Satellite programmes.
  • Building physical and social infrastructure.
  • Water, water management, clean rivers.
  • Blue Economy.
  • Self-sufficiency and export of food-grains, pulses, oilseeds, fruits and vegetables.
  • Achieving a healthy society via Ayushman Bharat, well-nourished women & children, safety of citizens.
  • Emphasis on MSMEs, Start-ups, defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices under Make in India.