India ought to move from aviation capacity to aviation capability

Having focused on creating capacity in the aviation sector, the time has come for India to shift gears and develop an ecosystem for the holistic growth of a sector that has huge potential for generating skilled and high-paying jobs.

The recent GIFT City reforms are a step in the right direction, as they will give a boost to the varied and complex aspects of the aviation sector, particularly its financial architecture.

Against this backdrop, the Government’s decision to exempt tax deduction at source (TDS) on lease rentals paid to eligible aircraft leasing companies operating from GIFT City assumes significance. It is much more than a simple tax reform and has the potential to unlock long-term opportunities in the sector.

This reform reflects a paradigm shift in India’s aviation journey.

For years, India has focused on building aviation capacity. Huge investments have been made in airports, strengthening regional connectivity, and expanding airline networks. Today, India is the world’s third-largest domestic aviation market, while Indian airlines have collectively placed orders for over 1,500 aircraft in recent years, reflecting one of the largest fleet expansion programmes globally. As a result, India has become one of the fastest-growing aviation markets in the world.

The next chapter is a booming General Aviation which includes Private Jets and Charter Flights, whose total active fleet has crossed 550 aircrafts cementing India as largest in South Asia. However, is about building aviation capability. It is not just about developing more airlines or airports, but creating the financial, technical, and institutional ecosystem that supports aviation. This means creating capabilities in aircraft leasing, financing, asset management, insurance, technical advisory and specialized aviation services, so that a larger share of aviation’s economic value is generated within the country.

For decades, India has been among the world’s largest users of leased aircraft, but the financing and ownership ecosystem has largely remained overseas. An estimated 78–80% of India’s commercial aircraft fleet is leased, compared with the global average of around 53%, underscoring the country’s dependence on overseas leasing companies. While airlines have successfully expanded their fleets, much of the financial value associated with aircraft ownership, leasing, and asset management has been retained abroad.

The initiative recognizes that India’s aviation ambitions cannot stop at expanding fleets; they must also extend to strengthening the ecosystem that finances and manages those fleets.

Aircraft leasing is often misunderstood as simply a financing arrangement between an airline and a lessor. In reality, it is much more than that. Every aircraft transaction creates demand for legal expertise, insurance, technical asset management, maintenance planning, valuation, compliance, and specialized financial services. A strong leasing ecosystem, therefore, creates opportunities that extend far beyond airlines.

It is in these segments that GIFT City has the potential to play a transformational role.

The latest TDS exemption will definitely reduce friction in leasing transactions and improve the overall attractiveness of GIFT City as a jurisdiction for aviation finance. The tax incentive will also help attract investment and increase the confidence of industry players in the ecosystem on a sustained basis.

Given the scale of fleet expansion planned by Indian airlines, the domestic aircraft leasing opportunity is estimated at nearly USD 100 billion over the coming years, making the development of a robust aviation finance ecosystem both an economic and strategic imperative.

The objective should not only be to bring leasing companies to India, but also to create an environment where aircraft can be financed, leased, managed, and eventually remarketed from India.

Business aviation, charter operators, helicopter services, and specialized aviation companies all require efficient financing and leasing solutions. As India’s economy continues to diversify, demand for flexible aviation services will increase across sectors such as healthcare, infrastructure, manufacturing, energy, and corporate mobility. A mature aviation finance ecosystem should, therefore, support the entire aviation industry rather than one segment alone.

The recent policy initiative is a milestone in a much larger journey. India has already demonstrated that it can build aviation capacity. The next opportunity and perhaps the more enduring one is to build aviation capability.

The author is Director & CEO of VCRAFT International Pvt. Ltd.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.