1. Will Budget 2024 help make India an MRO hub?

Will Budget 2024 help make India an MRO hub?

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Upstox

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4 min read • Updated: January 29, 2024, 12:49 PM

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Summary

India's aviation sector is growing rapidly, but its Maintenance, Repair & Operation (MRO) capabilities remain underdeveloped, comprising only 2.5% of the global market. With a $1.3 billion annual expenditure on overseas MRO services, there's a significant untapped economic opportunity. The 2024 interim budget offers a chance to boost the Indian MRO industry through streamlined regulations, financial incentives, reduced airport charges, and investments in infrastructure and skill development. Success hinges on collaboration among stakeholders.

aviation sector
Indian aviation is projected to grow at a CAGR of 6.3% over the next two decades, surpassing the 4.9 per cent growth rate for the rest of Asia.

Key Takeaways

  • Despite a booming aviation sector, India's share in the global MRO market stands at a meager 2.5%, presenting a massive untapped opportunity.
  • Policy changes and financial incentives in the 2024 interim budget can catalyze growth, attract investments and enhance infrastructure.
  • Upskilling the workforce, streamlining regulations, and fostering regional MRO hub development are crucial strategies for capitalizing on an $80 billion fortuity.
  • By addressing these aspects, India can capture a significant share of the global MRO market, and further ensure self-reliance and operational efficiency for its domestic aviation industry.

Fueled by a rising middle class and economic liberalization, India's aviation sector is flying high. This ascent has translated into a burgeoning demand for new aircraft, with forecasts anticipating the addition of over 1,000 jets by 2030.

However, there presently exists a cavern of division between the nation's ambition to scale its aviation sector and its maintenance, repair & operation (MRO) capabilities. With a minuscule 2.5% share in the $80 billion global MRO market, India currently spends a staggering $1.3 billion annually on overseas MRO services according to a Deloitte Report, 2021.

This dependence on foreign entities not only represents a missed economic opportunity but also raises the red flag on operational efficiency and aircraft grounding times.

Capitalizing on the Opportunity: Policy Recommendations for the 2024 Interim Budget

The upcoming 2024 interim budget presents a timely opportunity to further propel the Indian MRO industry towards its true potential.

Streamlining Regulatory Processes

The current regulatory environment can be cumbersome and time-consuming, discouraging foreign investment and MRO expansion. The budget can introduce measures to simplify and expedite regulatory approvals, particularly for new entrants and technological advancements. This could involve streamlining license issuance procedures, establishing clear guidelines for foreign direct investment (FDI), and promoting transparency in regulatory processes.

Providing Financial Incentives

Attracting long-term investments to fund infrastructure development and capacity expansion is crucial for sustained growth. The budget can offer tax breaks, grants, and subsidies for MRO companies, particularly those specializing in niche areas like engine or component overhaul. More importantly, providing access to low-cost financing options through dedicated credit lines or specialized financial institutions can address the immediate capital needs of the sector.

Reduce Airport Royalties and Charges on MRO Facilities

The high cost of MRO space in Indian airports, particularly in Kochi and Juhu, remains a major hurdle. The budget should introduce measures to reduce royalties and additional charges levied on MRO facilities, making them more competitive with overseas options. This could involve offering tax breaks, concessions, or establishing dedicated MRO zones with lower operational costs.

Address IGST on Repaired Components

The current practice of imposing IGST on components sent for repair abroad upon their return to India creates unnecessary costs and complexity. The budget should explore revising this policy or offering exemptions for repaired components, aligning it with international MRO practices.

Invest in Infrastructure Development

Existing MRO infrastructure in India requires upgrades to cater to larger and more complex aircraft. The budget should allocate funds for developing dedicated MRO facilities with adequate hangars, equipment, and testing facilities. Public-private partnerships (PPPs) can be leveraged to attract investments and expedite infrastructure development.

Fostering Skill Development

The Indian MRO sector suffers from a significant shortage of qualified technicians and engineers with expertise in diverse aircraft types. The budget can allocate targeted funds for establishing specialized training institutes, promoting industry-academia collaboration, and incentivizing skill development programs. Additionally, recognizing international certifications and facilitating knowledge exchange with global MRO players can further bridge the skill gap.

Conclusion

The promising Indian aviation sector presents a unique opportunity to capture a significant share of the global MRO market. By implementing policy reforms and making strategic investments, the government can foster a conducive ecosystem that attracts investments, enhances capabilities, and positions India as a competitive MRO hub.

The success of these initiatives hinges not only on budgetary allocations but also on collaborative efforts between industry stakeholders, policymakers, and educational institutions. This is a future within our reach, and the 2024 interim budget can be the first step towards making it a reality.