The aim of the government is to make India a global aviation hub with a $4 billion MRO industry by 2030.

Commenting on this development, the minister said, "The introduction of a uniform 5 percent IGST rate on MRO items is a major boost for the aviation sector."

"Previously, the varying GST rates of 5 percent, 12 percent, 18 percent, and 28 percent on aircraft components created challenges, including an inverted duty structure and GST accumulation in MRO accounts," he added. "This new policy eliminates these disparities, simplifies the tax structure, and fosters growth in the MRO sector."

Applauding the efforts of the Ministry of Civil Aviation, Ministry of Finance and other stakeholders who have worked diligently to achieve this policy adjustment recommended by the GST Council in its 53rd meeting on June 22, 2024, the minister said the uniform 5 percent IGST rate aims to reduce operational costs, resolve tax credit issues, and attract investment.

Highlighting the future prospects, the Civil Aviation Minister stated that the vision is to transform India into a leading aviation hub. The Indian MRO industry is projected to become a $4 billion industry by 2030.

"This policy change is a crucial step towards building a strong ecosystem for MRO services, driving innovation, and ensuring sustainable growth," he added.

Rammohan Naidu said that the ministry is confident that this move will significantly enhance the competitiveness of the Indian MRO sector, fostering innovation and efficiency, and creating a robust and efficient aviation sector.

According to reports, the measured steps that the Government of India has taken in moving towards the open sky policy, increase in military, civil and business aircraft fleet in the country, the growing preference for air travel by India's largely underserved middle class, and the focus by industry to optimise cost of aircraft operations, provides a strong foundation for the Indian MRO industry to strengthen its capability to meet global standards of excellence.

Setting up an MRO is highly capital intensive with a long break-even time, while operating a credible MRO is highly dependent on investing in the right manpower which is regularly trained and optimally utilised with a strong focus on quality and turnaround time.

It also requires continuous investment in tooling, certification from safety regulators such as the Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA) and global OEMs such as Airbus, Bell Helicopter, Boeing, Bombardier Aerospace, Dassault Aviation, Gulfstream Aerospace, Honeywell and others, in addition to certification from the local regulator in order to stay relevant in today's competitive global environment, as per reports.

In the past, the third-party MRO industry in the country has been dominated by small and medium enterprises with limited participation by global players.

This trend is gradually changing as the market size for MRO is becoming significant and is attracting interest from globally established players such as Boeing and EADS (European Aeronautic Defence and Space Company).

At the same time, established Indian players such as Gurgaon-based Air Works are taking the necessary steps to acquire or partner with global companies to establish capabilities in specific parts of the MRO value chain.

Experts said the sector does have the credibility to attract MRO work not only from India but also South East Asia, Middle East and Eastern Europe.

Deloitte reports, citing industry reports, that India has been identified as the seventh-largest civil aviation market in the world, and it is set to become the world’s third largest by 2026, representing a significant expansion scope for MRO facilities in the country.

According to Deloitte, India's indigenous MRO sector's growth will mainly be fuelled by a growing aviation industry, which is expected to generate nearly 90,000 jobs and save about $2 billion in foreign exchange.

The size of the Indian MRO industry is expected to rise from $1.7 billion in 2021 to $4 billion by 2031, at a compound annual growth rate (CAGR) of 8.9 percent against the expected global CAGR of 5.6 percent, reports Deloitte.

With more than 1,000 aircraft currently on order, India is likely to become the third-largest buyer of commercial passenger planes in the world, only after the United States and China, which translates into demand for 200–300 major maintenance checks annually, as reported by Deloitte.

Independent think tank Centre for Asia Pacific Aviation (CAPA) also said in its report that India, which currently has a fleet size of 713 commercial aircraft, is poised to become the third-largest buyer in the world with an order book of more than 1000 commercial aircrafts.

According to Indian Government's apex public policy think tank NITI Aayog, the Indian civil aviation industry has been the centrepiece of the development of MRO Industry in the Asia Pacific region and is projected to depict a substantial growth of 9.1 percent by 2031.

NITI Aayog said in a report that airlines in India spend around 12-15 percent of their overall revenues on maintenance, which becomes the second most expensive item after fuel (45 percent of operating expenses).

In general, airline operators in India perform on-tarmac inspections (A and B checks) in-house and outsource engine, heavy maintenance (C and D checks) and modification work to third party MROs.

Engine and component repairs account for over 60-70 percent of MRO costs, and the remaining 30-40 percent is spent on airframe maintenance.

Of the two, Indian MROs are competent in performing airframe maintenance whereas engine and component MRO services are procured from abroad, as per NITI Aayog.

The NITI Aayog report added that there is no major helicopter MRO facility in India except for Pawan Hans and Hindustan Aeronautics Limited (HAL), and helicopter MRO services are therefore a significant business opportunity with considerable potential for the future.

Last month, Business Today reported that top aviation industry players in India feel that the government’s priority should be on transforming India into a global aviation hub and Delhi, Mumbai, Hyderabad and Bengaluru airports take a proportion of outbound Indian traffic via Singapore, Dubai and Abu Dhabi.

Business Today reported, quoting SpiceJet CEO Ajay Singh, that having regional hubs in the country would not be beneficial to just the two major players — Air India and Indigo — but to smaller players.

“All of us will be a beneficiary and it should be done quickly. We move slowly (on making a decision) and there is a lack of coordination (among stakeholders). Airports at Delhi, Mumbai, Hyderabad, and Bengaluru can take the proportion of traffic that flows outside via Singapore, Dubai and Abu Dhabi,” Singh told Business Today.

MD and CEO of Air India, Campbell Wilson told Business Today that India is at an ideal location geographically to serve regional hub serving Indian traffic in the country.

“That would require more infrastructure facilities and better passenger amenities. The competition is Dubai Airport on one side and Singapore towards the east. So, it is not just big-ticket policy; some micro-policy issues need to be looked at,” Wilson said while speaking at the CAPA India Aviation Summit last month.

According to a report by Mint published in April, with India’s largest airline IndiGo entering the long-haul segment, industry experts see it as a step towards the country becoming a global aviation hub as growing prosperity fuels an air travel boom in the world's fifth-largest economy.

Mint reported, quoting industry experts, that a firm order for 30 Airbus wide-body aircraft by IndiGo along with purchase rights for another 70, coupled with Air India’s 70 wide-body aircraft order in 2023, could provide a distinct competitive edge to Indian airlines against foreign carriers.

Foreign carriers accounted for a 56 percent share of the 54.4 million international passenger traffic to and from India in FY23, with the remainder held by Indian carriers, Mint reported, quoting the country's aviation regulator Directorate General of Civil Aviation (DGCA).

The ratio was earlier more skewed in favour of foreign carriers as their respective share was 62.4 percent and 37.6 percent in FY20.

During April-December of FY24, domestic carriers garnered 44.3 percent share of international traffic from India, reports Mint.

According to reports, India is projected to be the world's third-largest economy by 2027, needing hundreds of aircraft and scores of airports as millions of new passengers take to the skies.

The latest development is also in line with the National Aviation Hub policy, which is in the pipeline, reports Mint.

The Indian civil aviation ministry is working on the draft of an aviation hub policy along with stakeholders, which will encourage Indian airlines to launch more non-stop flights to faraway destinations and push domestic airports to develop infrastructure for a hassle-free transit for international flights, according to a report by Mint published in December last year.