As the government prepares Budget 2026–27, the aviation sector is less focused on new announcements and more on delivery. As per an ICRA report, domestic air passenger traffic for seven months of FY26 (April to October 2025) was 944.5 lakh, even as infrastructure constraints at major airports became more visible.
Focus on improving regional connectivity
According to government data, the number of airports in India has risen from 74 in 2014 to 163 in 2025, and the Centre has outlined an ambitious vision to scale this up to 350–400 airports by 2047, when India marks 100 years of Independence
With India now the world’s third-largest aviation market, the upcoming budget is expected to prioritise continuity, particularly on regional connectivity, airport capacity expansion and tourism-led demand creation, rather than unveil new fiscal support.
“Budget 2026 is expected to reiterate the focus on improving regional connectivity through the Regional Connectivity Scheme (RCS) or UDAN,” Kinjal Shah, senior vice president and co-group head, corporate sector ratings at ICRA, said.
The sector’s expansion has also translated into employment and economic output. As per IATA, India’s aviation sector directly employs about 369,700 people and generates $5.6 billion in economic output, accounting for 0.2% of the country’s GDP. Including indirect employment, the sector currently supports over 7.7 million jobs, with demand for skilled personnel such as pilots, engineers, ground staff and logistics professionals expected to rise sharply as capacity expands.
What the aviation sector expects from Budget 2026–2027
Against this backdrop, Budget 2026–27 is expected to focus on execution rather than expansion of scope. Industry participants expect sustained funding and policy backing for UDAN, particularly to improve connectivity to underserved and unserved destinations.
“The Budget is also likely to focus on setting up new airports and expanding the existing airport capacities at some key airports to help address the current airport infrastructure constraints faced by the airlines,” Shah added.
International connectivity and tourism push
On the international front, the budget is expected to rely on enabling measures rather than heavy fiscal outlays. As per ICRA, the promotion of medical tourism, which already attracts several million foreign patients annually, and further streamlining of e-visa facilities are likely to remain in focus.
Budgetary allocation for Aviation so far
The last Budget adopted a measured stance towards aviation spending. The Ministry of Civil Aviation was allocated Rs 2,400.31 crore, a decline of about 10% from the previous year’s revised estimates.
Within this, the modified UDAN scheme received Rs 540 crore even as the government signalled that the next phase of aviation growth would be driven more by infrastructure creation and regulatory reform than by direct subsidies.
The modified UDAN programme was positioned as a long-term connectivity engine, with the stated objective of adding 120 new destinations and enabling air travel for 4 crore additional passengers over the next decade.
Alongside this, Budget 2025–26 reiterated the government’s commitment to airport expansion, including a broader target to develop 50 new airports over five years, and capacity augmentation at congested metro hubs.
What has been achieved so far
Progress, on the other hand, has been uneven since the last budget. UDAN has so far operationalised over 650 routes, connecting 93 airports, including 15 heliports and two water aerodromes.
As per PIB, more than 1.56 crore passengers have travelled on RCS–UDAN flights so far, with 3.23 lakh regional flights operated nationwide. To keep these routes viable, around Rs 4,300 crore has been disbursed as Viability Gap Funding.
On infrastructure, the commissioning of Navi Mumbai International Airport in December 2024 marked a milestone. Built at a cost of over Rs 19,650 crore, the new airport can handle 20 million passengers a year in its first phase, with capacity rising to 90 million over time. This is expected to ease pressure on Mumbai’s overcrowded aviation system in the long run.
In comparison, progress at Noida International Airport in Jewar has been slower than expected. Although much of the infrastructure is ready and the project is estimated to cost Rs 6,500 crore, operations are now likely to begin only in early 2026, delaying much-needed capacity for the National Capital Region.
At the same time, expansion at existing airports has struggled to keep up with rising demand. Passenger traffic at Indian airports is expected to grow at an annual rate of 7% until 2027, according to CareEdge Ratings. Over the past decade, domestic air passenger traffic has grown at a compounded annual rate of 10–12%, underscoring the widening gap between demand and infrastructure, as per PIB.
Financial stress persists
Despite strong structural growth drivers, airline finances remain under strain. According to PTI, domestic aviation industry net losses are projected to widen to Rs 9,500–10,500 crore in FY26, nearly double the estimated Rs 5,500 crore loss in FY25, driven by moderating passenger growth and rising costs linked to aircraft deliveries.
ICRA expects domestic passenger traffic growth of 4–6% in FY26 and estimates the industry’s interest coverage ratio to remain weak at 1.5–1.7 times. While these losses are significantly lower than the Rs 21,600 crore and Rs 17,900 crore reported in FY22 and FY23, respectively, financial pressure is expected to persist (PTI).
Passenger traffic grew 7.6% in the last financial year to 16.53 crore, but growth in the current year has been moderated by cross-border tensions, global disruptions, travel hesitancy following the June 2025 aircraft tragedy, and air traffic control-related disruptions, according to a PTI report.