The civil aviation ministry is working on a production linked incentive (PLI) scheme estimated at about Rs 15,000 crore to support domestic manufacturing of small aircraft. Sources said that an announcement to this effect is likely in the upcoming Union Budget.
The proposed scheme is being structured for a six-year period beginning 2026-27 and is expected to be in the range of Rs 12,000 crore to Rs 15,000 crore. It is aimed at encouraging the development of a full manufacturing ecosystem for small aircraft, typically defined as planes with fewer than 20 seats that operate on short-haul and regional routes, sources said.
Eligibility Criteria and Indigenization Thresholds
Under the draft framework, original equipment manufacturers would qualify for incentives only if they meet strict indigenous manufacturing thresholds. The scheme is expected to mandate that aircraft manufactured in the country after 2028-29 must have at least 80% domestic content to be eligible for incentives.
In addition, eligible manufacturers would need to have invested a minimum of Rs 1,000 crore in aircraft and aircraft parts manufacturing in the country from 2019-20, sources said.
The high indigenous content requirement has been deliberately built into the design of the scheme to ensure that incentives support genuine manufacturing capability rather than limited assembly activity.
By setting the bar at 80%, the policy seeks to push the localisation of design, systems and component manufacturing and deepen domestic supply chains across the aviation sector, according to the sources.
Fiscal Incentives for Commercial Customers
The government is also examining options to extend fiscal incentives to customers who place orders with the country’s first large commercial aircraft final assembly line. Such incentives, if approved, are expected to be calibrated and taper as order volumes scale up, reflecting improving economies of scale and maturity of the manufacturing base.
The policy work comes amid growing interest in establishing aircraft assembly operations in the country. Recent reports have indicated that the Adani Group has signed a memorandum of understanding with Embraer to explore setting up a final assembly line in India for regional jets.
These aircraft, with seating capacities between 70 and 146 passengers, cater to short- and medium-haul routes, and a formal announcement is expected around the Hyderabad air show.
Leveraging the World’s Fastest-Growing Aviation Market
The timing of the proposed PLI scheme also aligns with the rapid expansion of the domestic civil aviation market, currently the fastest-growing globally. Domestic carriers have placed orders for more than 1,800 aircraft, including by the Air India group, IndiGo and Akasa, creating a long-term demand outlook that policymakers see as an opportunity to anchor manufacturing locally.
Policymakers are looking to leverage this demand to build end-to-end domestic capability for small aircraft that can support regional and short-haul connectivity under the government’s regional air connectivity programme.
Industry participants said such a framework could also benefit tier-I suppliers, including companies such as Rossell Techsys, which supply global aircraft makers like Boeing, by expanding local sourcing and manufacturing depth, sources said.