In her maiden budget speech, Finance Minister Nirmala Sithraman mentioned the policies and initiatives about the aviation sector in the very initial phase of speech.
This shows that the Modi government is focused on resolving the issues in the aviation sector where some of the biggest companies have gone bankrupt in the last fiscal year. The government wants to make the country self-reliant in the aviation sector. The government plans to make India a hub for aircraft financing and leasing activities and therefore Ahmedabad’s GIFT city would be made tax free zone.
The low-cost airlines like IndiGo and SpiceJet plan to induct more than 500 aircraft in the coming year and the domestic aircraft industry would get a significant boost if the demand is met at home.
The FDI norms in aviation, media, and insurance sector would be relaxed to attract more capital. The government wanted to sell 76 percent stake in national carrier Air India but the debt-ridden company got no bidders. Now the government plans to sell Air India completely.
However, according to a report by Economic Times, “There is no clarity on the Substantial Ownership and Effective Control (SOEC) clause yet. The SOEC clause bars any foreign investor from taking complete control of the operations of the airline and be run by a board that has two third members as Indian.”
According to Make in India website up to 49% FDI is allowed under the Automatic route in Scheduled air transport service/ domestic scheduled passenger airline/ regional air transport service. The government may relax the norms to allow 100 percent foreign investment in the sector.
The relaxation of FDI norms, as announced in the Budget, would increase the chances of debt-ridden carriers like Air India and Jet Airways sold at good rates.
The Maintenance Repair and Overhaul (MRO) sector would get a tax rebate to bring down the cost of servicing the planes. The airlines preferred to carry out the MRO process in neighbouring countries like Sri Lanka and Singapore due to low cost.
The emphasis on self-reliance in the aviation sector would be beneficial to Make In India and also help in job creation.