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India’s aviation sector is poised for a significant transformation, thanks to the Union Budget 2026-27. Finance Minister Nirmala Sitharaman has unveiled a strategic roadmap that pivots the industry’s focus towards strengthening domestic manufacturing, enhancing maintenance, repair, and overhaul (MRO) capabilities, and expanding crucial last-mile connectivity. This isn’t just about planes; it’s a holistic vision linking aviation growth directly to the nation’s tourism potential, logistics efficiency, and robust job creation.
Manufacturing and MRO Takes Flight: A Boost for ‘Make in India’ Aviation
One of the Budget’s most impactful announcements is the removal of basic customs duty on components and parts essential for manufacturing civilian, training, and other aircraft. “I propose to exempt basic customs duty on components and parts required for the manufacture of civilian, training and other aircrafts,” Finance Minister Sitharaman declared, signalling a clear intent to lower input costs for domestic production.
Adding to this thrust, duty relief was also extended to the defence sector’s maintenance needs. “It is proposed to exempt basic customs duty on raw materials imported for manufacture of parts of aircraft to be used in maintenance, repair, or overhaul [MRO] requirements by units in the defence sector,” she added. These exemptions are critical. India currently relies heavily on imports for aircraft manufacturing and sends a substantial portion of its MRO work overseas, inflating operational costs for airlines.
Industry leaders are optimistic. Ashish Chhawchharia, partner and aviation industry leader at Grant Thornton Bharat, noted that these exemptions would “lower input costs, making aircraft acquisition and upkeep more affordable while strengthening India’s domestic MRO capability.” With passenger traffic projected to hit 665 million annually by FY31, he emphasized, “The intent is clear to boost India’s aircraft manufacturing and MRO industry and position India for a larger role in the global aviation sector.”
Venkatesh Mudragalla, co-founder and chief operating officer at Jeh Aerospace, echoed this sentiment, stating the exemptions would “improve cost competitiveness across the aviation manufacturing value chain.” He stressed the importance of sustained policy continuity to solidify India’s position in global aerospace and defence supply chains.
On the defence front, the Budget allocated a substantial Rs 63,733.94 crore for ‘aircraft and aero engines’ under capital outlay, with additional funding for prototype development and technology projects, reinforcing the commitment to domestic military and transport aircraft production.
Soaring Towards Enhanced Connectivity and Infrastructure
The Ministry of Civil Aviation received an allocation of Rs 2,102.87 crore for 2026-27, with a significant Rs 550 crore earmarked for the Regional Connectivity Scheme (RCS). This scheme remains crucial for reviving unserved and underserved airstrips, particularly in remote and North-Eastern regions, ensuring that air travel benefits every corner of the nation.
Regulatory oversight also saw a boost, with Rs 342 crore allocated to the Directorate General of Civil Aviation (DGCA) and Rs 114 crore to the Bureau of Civil Aviation Security (BCAS). Investment in pilot training institutions, including the Indira Gandhi Rashtriya Udaan Academy and the National Aviation University, underscores a commitment to skilled manpower development.
While airport infrastructure development continues to be largely driven by the Airports Authority of India (AAI), which plans to deploy Rs 4,699.92 crore for expansion and upgrades, the emphasis on robust infrastructure development remains paramount.
Seaplanes: A New Wave for Last-Mile Connectivity and Tourism
In an exciting move, the Finance Minister highlighted seaplanes as a key initiative for strengthening last-mile connectivity and boosting tourism. Incentives will be provided to promote domestic manufacturing of seaplanes, coupled with a new Viability Gap Funding (VGF) scheme to support operations on routes that may not be immediately commercially viable. “To enhance last-mile and remote connectivity, and promote tourism, I propose to give incentives to indigenise manufacturing of seaplanes,” Sitharaman announced.
However, aviation consultant Mark Martin, founder and CEO of Martin Consulting, offered a word of caution. While positive, he pointed out that manufacturing incentives alone might not suffice without addressing the necessary infrastructure. “Seaplane manufacturing is a positive step, but no announcement was made for seaplane infrastructure and seaports,” he stated, describing it as “cart before the horse” and emphasizing the need for structured seaports with jetties, piers, and slipways across coastal cities.
Cargo and Logistics Get a Lift
The Budget also made significant strides in aviation-linked logistics. The removal of the Rs 10 lakh per consignment value cap on courier exports is a welcome move, expected to significantly boost cross-border e-commerce and express logistics.
Balfour Manuel, managing director of Blue Dart, highlighted the impact: “The duty exemption on aviation components was especially important for the express logistics ecosystem, where aircraft uptime and maintenance efficiency directly impact time-definite delivery performance.” He added that reforms in cargo infrastructure, multimodal connectivity, and customs processes would collectively reduce logistics costs and enhance export competitiveness.
Tourism: Fueling Demand and Creating Jobs
Complementing the aviation push, tourism-related measures are strategically positioned as a major demand driver. Plans include establishing a National Institute of Hospitality, a pilot programme to train 10,000 tourist guides across 20 destinations, and the creation of a National Destination Digital Knowledge Grid to digitally document India’s rich cultural, spiritual, and heritage sites.
Aalap Bansal, partner at KPMG India, observed that the integration of digital tourism platforms with tangible infrastructure, such as seaplanes and sustainable travel corridors, could foster higher-value tourism and local employment. “We are moving towards an era where India’s ‘Orange Economy’ and heritage sectors become significant employment engines for local communities,” Bansal explained.
India’s Aviation Ascendancy: A Vision for the Future
This comprehensive aviation push arrives amidst a period of unprecedented growth for the sector. Passenger traffic has surged, airlines have placed record aircraft orders, and airport infrastructure has expanded rapidly. While recent operational disruptions have highlighted areas for improvement, the overall trajectory is upward.
Prime Minister Narendra Modi, speaking at Wings India 2026, reinforced the government’s commitment: “Air travel was once limited to an exclusive club. Today, India has become the world’s third-largest domestic aviation market.” He noted the staggering orders for over 1,500 new aircraft and the expansion to over 160 airports, underscoring a future where regional air connectivity, including seaplane operations, makes remote areas more accessible. Budget 2026 is clearly charting a course for India’s aviation sector to not just fly higher, but to become a global leader in manufacturing, MRO, and unparalleled connectivity.
Source: Original Article
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