Government Targets Key Areas

Finance Minister (FM) Nirmala Sitharaman presented the Union Budget 2024-25, with the civil aviation ministry getting its share at ₹2,357.14 crore, a notch less than last year’s funds allocation. Although this is viewed by some with scepticism, aviation stakeholders are of the opinion that this year, the budget is more focussed on certain key areas that needed more attention, funds and growth.

Sharad Agarwal, Chief Executive, AI Engineering Services, one of India’s largest MROs pointed out the reduced allocation of funds to civil aviation sector. In 2023-24, the budgetary allocation was ₹2922.12 crores, whereas in the present budget, it is around ₹2357.14 crores. Dismissing this as an afterthought Agarwal feels that this budget is more task-oriented as far as aviation is concerned. He gives an example of how separate allocation is made for improving aviation infrastructure in Northeast.

The main focus of the budget with regards to civil aviation was – Drones and Maintenance, Repair and Overhaul (MRO) sector. Drones got a higher allocation eyeing the rising demand of indigenous drones and its applications while an uproar from the MRO sector led the government to rake up some of its key policies like implementing uniform IGST and revisiting the FDI in MRO. “The budget allocation by Finance Minister Nirmala Sitharaman is an important and promising step towards job creation for the youth, infrastructure development, and a skilled workforce,” says Jaideep Mirchandani, CEO of SkyOne.

Industry experts feel that government’s commitment to maintaining robust fiscal support for infrastructure over the next five years, with a capital expenditure allocation of ₹11.11 lakh crore at 3.4 per cent of GDP, highlights its dedication to fostering sustainable economic growth and enhancing our nation’s foundational assets. “This substantial investment is poised to provide the much-needed boost to the aviation sector in India, driving growth and innovation,” adds Mirchandani.

RCS-UDAN BUDGET SLASHED – FUNDS DIVERTED TO AIRPORT REVAMP

In what is looked upon as one positive aspect of budget allocation for different sectors within civil aviation was reduced budget for regional connectivity scheme and the balance funds to be allocated for airport revival and redevelopment. The budget for the regional air connectivity scheme has been slashed by 60 per cent to ₹502 crore after a record-high grant of ₹850 crore last time in the revised allocation for 2023-24. This amount will be used for the revival of 22 airports, mostly unused and underused airports in tier-2 and tier-3 cities. Since inception the RCS- UDAN scheme was looked upon with scepticism as airlines were shy of bidding on remote UDAN routes. The reason was obvious – lack of passengers leading to eventually termination of the route. Calling this move as a welcome step for taxpayer’s money, Captain Peeyush Kumar, Chipsan Aviation Limited says that this is apparently bitter truth from CAG’s report on the scheme was accepted. “It is unfortunate that sector is being advertised widely for purchase of planes or airport construction, has its budget reduced by 20 per cent (approximately) instead of a boost,” Kumar adds.

The main focus of the budget with regards to civil aviation was Drones and the Maintenance, Repair and Overhaul (MRO) sector

Kumar further expresses his displeasure that on government’s decision not to ‘fuel-up’ the UDAN sector as hyped. However, overall, the industry experts feel that by cutting costs on non-viable sector the FM’s decision of allocating more funds for airports is the need of the hour.

NORTHEAST GETS ITS DUES!

The scenic but neglected northeastern region got its due this budget season with a new scheme to improve air connectivity and aviation infrastructure. Girish Nair, Partner, KPMG India, hails government decision to focus on the development of neglected northeastern states. Calling it as a key highlight of the budget, he goes on to praise FM for the same.

BUDGET MADE DRONES ‘HAPPY’

India is on the cusp of leading the Industrial Revolution 4.0 and on this backdrop, India has aimed to be a major hub for drones by 2030. This is expected to boost India’s gross domestic product by 1 to 1.5 per cent and add over five lakh jobs. Since many years, the drone industry was asking for an expansion of the Production Linked Incentive (PLI) scheme which was rolled out by the government in 2021. Thankfully, their plea was heard and, in this budget, the PIL scheme for drones and components received an allocation of ₹57 crore, as compared to ₹33 crore in 2023-24 revised estimate, a hike of ₹24 crores. This has made the drone community in the country very happy indeed and “This will give a much-needed thrust to the drone fraternity,” Agarwal adds.

MRO SECTOR ON GOVERNMENT’S RADAR

Another neglected sector of aviation came to limelight this Budget with Maintenance, Repair and Overhaul (MRO) segment also getting its due. In a major boost to the domestic MRO industry and to the aviation sector, the Government announced that a uniform rate of 5 per cent IGST will apply to imports of Parts components, testing equipment, tools and toolkits of aircraft, irrespective of their HSN classification subject to specified conditions. Industry experts are of the opinion that this policy change is a crucial step towards enhancing the competitiveness of the Indian MRO sector, fostering innovation and efficiency and creating a robust and efficient aviation sector.

The northeastern region got its due in this budget with a new scheme to improve air connectivity and aviation infrastructure

HIGHLIGHTS OF GRANTS TO THE MRO SECTOR SO FAR

• As part of the announcements made in Union Budget 2024-25, the period for export of goods imported for repairs has been extended from six months to one year. Also, the timelimit for re-import of goods for repairs under warranty has been extended from three to five years.
  Calling this as a welcome and long-awaited move Agarwal goes on to explain the obvious benefits for third-party MROs in India. “AIESL has EASA approved aero engine overhaul shop, where typical Turn-Around-Time (TAT) for an engine is three months. At times, due to unforeseen defects observed, there is a need to order further spares, which may have long lead time and the engines invariably gets delayed beyond six months. We also may face a situation, where an engine may have to wait for a slot for induction into the shop. Hence this proposed move is going to highly beneficial for the industry,” Agarwal explains in detail.
• New MRO Guidelines announced on September 1, 2021 inter alia abolish royalties and build in transparency and certainty in land allotments for MROs in AAI airports.
• GST on MRO has been reduced from 18 per cent to five per cent with full Input Tax Credit from April 1, 2020.
• Transactions sub-contracted by foreign original equipment manufacturers (OEMs)/ MRO to domestic MRO are treated as ‘exports’ with zero-rated GST from April 1, 2020.
• Exempted Customs Duty on tools and tool kits.
• Simplified clearance processing of parts.
  Some of the other allotments made in Budget for civil aviation sector are:
• For 2024-25, the allocations for the Directorate General of Civil Aviation (DGCA) and the Bureau of Civil Aviation Security (BCAS) have been reduced to ₹302.64 crore and ₹89 crore, respectively.
• An amount of ₹57.14 crore has been allocated for the Hotel Corporation of India Ltd to meet its statutory and other obligations under the ministry of civil aviation.
• An amount of ₹85 crore has been allocated this fiscal for providing medical benefits to retired employees of Air India, which was sold to Tata Group in 2022. In 2023-24, the amount stood at ₹51 crore.
• The government has set aside ₹502 crore for the scheme compared with the previous Budget Estimate (BE) of ₹1,244 crore, which was also the highest-ever allocation for the scheme since its launch in 2017.

All-in-all we saw that the budget is more focussed on developing key remote regions of India, while making India a dronehub and MRO-hub. “As far as the infrastructure development is concerned, with an increase in targeted spending, we will gradually see more flights in regional cities; and it is in these cities where the next aviation boom will happen,” Agarwal adds.

Thus, although civil aviation got less than its fair share, spending on right places, right infrastructure projects and policies will help our country scale up in its dream of becoming one of the fastest growing aviation markets in the world.