Budget 2024: Government eases norms for ship, aviation MRO industry to promote India as a hub

The government proposes to relax norms for the aviation and shipping maintenance, repair, and overhaul (MRO) industry to make India a hub for such facilities and fuel the growth of the transportation sector.

“To promote domestic aviation and boat and ship MRO, I propose to extend the period for export of goods imported for repairs from six months to one year. In the same vein, I propose to extend the time limit for re-import of goods for repairs under warranty from three to five years,” finance minister Nirmala Sitharaman said in her budget speech on Tuesday.

Industry officials and experts said the finance minister's decision would boost India's fledgling MRO industry and benefit airlines in the country and the neighbourhood.

“This will provide a major fillip to the industry, enhancing operational efficiency and reducing downtime for aircraft,” said Ashish Saraf, country director of Thales in India. Thales is set to establish an avionics MRO facility in Gurugram by next year.

“Changes with respect to enhancement of timelines of export/re-import are a step towards creating India as an MRO hub. Eventually, the idea is to attract foreign shipping and aviation players for repairs in India,” said Samir Kanabar, a tax partner at EY India.

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The government had highlighted the potential in the Indian MRO industry in the Economic Survey for 2023-2024. It said the development of capabilities in segments such as MRO, leasing and skilling is needed to support Indian airlines because the technical knowledge for such operations and manufacturing is concentrated with a few companies.

This comes after taxes in the sector were rationalised. At its 53rd meeting in June, the GST Council had recommended a uniform 5% integrated goods and services tax rate to reduce operational costs, resolve tax credit issues, and attract investment in this sector.

“Previously, the varying GST rates of 5%,12%, 18%, and 28% on aircraft components created challenges, including an inverted duty structure and GST accumulation in MRO accounts. This new policy eliminates these disparities, simplifies the tax structure, and fosters growth in the MRO sector,” civil aviation minister Kinjrapu Rammohan Naidu said earlier this month.

"This, with the recent tax-cut announcement imposing a uniform 5% GST rate on imported aircraft and parts, is set to boost the domestic MRO industry significantly. Moreover, these changes will not only benefit the domestic industry but also position India as a major hub for South Asian airlines in the coming years," Saraf said.

Indian carriers have ordered over 1,600 aircraft and this is expected to be a catalyst for the Indian MRO industry. Such facilities carry out routine checks, repairs, replacement of components and maintenance of aircraft with the primary purpose of keeping them airworthy.

In India, airlines spend 12 to 15% of their revenue on maintenance, the second most expensive item after fuel, which constitutes 40-45% of operating expenses. In general, airline operators in India outsource engine, heavy maintenance and modification work to third-party MROs.

The budgetary allocation for the civil aviation ministry was cut to ₹2,357.14 crore for FY25 from the revised estimate of ₹2,922.12 crore and initial estimate of ₹3,113.36 crore in FY24.

India's regional air connectivity scheme Udan will receive ₹502 crore in FY25, lower than the revised estimate of ₹850 crore and the initial estimate of ₹1,244 crore in FY24. The amount will be spent to revive 22 airports, start 124 air routes, and on funding for north-east connectivity.