Budget proposes incentives for manufacture of training aircraft, seaplanes

Finance Minister Nirmala Sitharaman announced incentives for the manufacture of aircraft in India, including training aircraft and seaplanes, in the Union Budget 2027.

The Minister has proposed removal of the 5% basic customs duty currently applicable on “components and parts required for the manufacture of civilian, training and other aircraft”, as well as the exemption of basic customs duty on raw materials imported for aircraft maintenance, repair and overhaul services in the defence sector.

The civilian aerospace sector, which also has a similar demand, waits to read the fine print in Ms. Sitharaman’s Budget. The Finance Minister has also announced ”incentives to indigenise manufacturing of seaplanes” to enhance “last-mile and remote connectivity, and promote tourism”. The details of the incentives have not been specified yet.

The aviation industry has welcomed these proposals. A viability gap funding scheme, or subsidy, will also be introduced to support the use of seaplanes, Ms. Sitharaman said.

Seaplane flights are part of the UDAN scheme since 2018, but no routes have taken off yet — a seaplane flight between the Sabarmati riverfront in Ahmedabad and the Statue of Unity near Kevadia in the Narmada Valley was launched in 2020, but it closed soon after. A modified UDAN scheme announced by the Finance Minister in the previous Union Budget is awaiting Cabinet approval. UDAN seeks to promote flight connectivity to Tier 2 and Tier 3 cities.

Aerospace and defence manufacturers also welcomed the decision to allow Special Economic Zones to sell domestically at concessional rates of duty as “a special one-time measure”, to address concerns arising from global trade disruptions.

“At a time of global demand volatility and trade disruptions, this pragmatic measure will help improve capacity utilisation, support operating efficiencies, and provide greater flexibility for capital-intensive manufacturing operations,” Aravind Melligeri, executive chairman and CEO, Aequs Limited, said. “A more permanent framework for domestic sales from SEZs, would further strengthen India’s ability to meet growing indigenous demand while also becoming globally competitive,” Mr. Melligeri said.

“We had petitioned the government for waiver of basic customs duty, and we are glad that it has happened,” Abhay Pashilkar, Director, (Council of Scientific and Industrial Research) CSIR-(National Aerospace Laboratories) NAL said.

NAL recently entered into a technology transfer agreement with a private company for manufacturing a two-seater trainer aircraft, the Hansa 3(NG). The move will promote the growth of flight training organisations in the country and ensure pilots receive more training within India as the Hansa 3(NG) aircraft costs only about half of what training aircraft imported from overseas do, he said.

The aerospace manufacturing push follows Prime Minister Narendra Modi’s ambition voiced in October 2022 that India should have its own indigenously manufactured passenger aircraft. Mr. Modi was speaking at the signing of an agreement between Tata Advanced Systems and Airbus for domestic manufacturing of the latter’s military transport C-295 aircraft, with the setting up of a final assembly line. The two entities are also jointly setting up a final assembly line for Airbus H125 civil helicopters. 

In related developments, Hindustan Aeronautics Limited has announced plans to manufacture the Russian SJ-100, a 100-seater passenger aircraft. The Adani Group has signed a Memorandum of Understanding with Brazil’s Embraer for aircraft manufacturing in India.