NewsStocksUnion Budget 2026-27 May Grant Infrastructure Status to Aircraft to Boost Aviation FinancingUnion Budget 2026-27 May Grant Infrastructure Status to Aircraft to Boost Aviation Financing
Union Budget 2026-27 may grant infrastructure status to aircraft to ease airline financing constraints and support aviation sector growth. The move could enable access to lower-cost loans through Priority Sector Lending framework and broaden lender participation. With Indian carriers ordering over 1,700 aircraft and current fleet exceeding 800 commercial aircraft, the classification could encourage shift from operating to finance leases while reducing foreign exchange outflows.
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The Union Budget for 2026-27 is reportedly considering a significant policy change that could reshape financing in India's aviation sector. According to industry sources cited by the Hindu Business Line, the government may grant infrastructure status to aircraft under the asset category to support the expansion of the country's aviation industry. This move could address long-standing financing challenges faced by airlines, particularly smaller operators struggling with high borrowing costs and limited access to credit.
Current Aviation Landscape and Growth Projections
India's aviation sector is experiencing unprecedented growth momentum, with strong indicators pointing to continued expansion. The current operational landscape and future commitments demonstrate the sector's robust trajectory:
| Parameter | Current Status |
|---|---|
| Commercial Aircraft in Service | More than 800 |
| Aircraft Orders Placed by Indian Carriers | More than 1,700 |
| Expected Growth | Sharp rise anticipated |
Financing Challenges in Aviation Sector
The aviation industry currently faces significant financing constraints that limit growth potential. Smaller airlines particularly struggle with accessing aircraft through leasing arrangements, leading some to consider outright purchases. However, these plans have been hampered by high interest rates and limited willingness among domestic banks to finance aircraft acquisitions. The reluctance of domestic lenders stems from risk concerns associated with aircraft financing and the substantial capital requirements involved.
Infrastructure Status Benefits and Framework
Granting infrastructure status to aircraft could provide multiple advantages for the aviation sector. The classification would enable airlines to access lower-cost loans, including financing under the Priority Sector Lending (PSL) framework regulated by the Reserve Bank of India. Under PSL norms, banks are required to allocate a portion of their lending to specified sectors, potentially improving credit availability for aviation companies.
The infrastructure classification would also broaden the lender base significantly. Insurance companies would be able to participate in aircraft financing, while banks could offer longer repayment tenures. This expanded participation could help address the current gap in aviation financing and provide more flexible terms for airlines.
Precedent and Policy Rationale
The government has established a precedent for extending infrastructure status to movable assets. In the previous Union Budget, commercial shipping vessels received infrastructure classification, addressing earlier concerns about assigning such status to non-fixed assets. This precedent has strengthened the aviation industry's case for similar treatment of commercial aircraft.
Industry executives suggest that infrastructure status could encourage a shift from operating leases to finance leases. This transition could help address domestic lenders' risk concerns while reducing high borrowing costs. Additionally, eligibility under PSL norms could better align financing structures, while rupee-denominated loans for aircraft purchases could reduce foreign exchange outflows as fleet additions accelerate.
Government's Strategic Focus
The government demonstrates keen interest in improving credit access for the aviation sector, particularly targeting start-up airlines and operators of small-capacity aircraft. This focus aligns with broader objectives of supporting emerging players in the aviation market and ensuring sustainable growth across different segments of the industry. The proposed infrastructure status represents a strategic intervention to address systemic financing challenges that have historically constrained aviation sector expansion.
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