From incentives for indigenisation of seaplane manufacturing to customs duty exemptions, the Union Budget for 2026-27 aimed at lowering costs for the aviation sector, strengthening domestic manufacturing, and expanding regional and last-mile connectivity as the government linked aviation growth with tourism, logistics and job creation.
In her Budget speech, Finance Minister Nirmala Sitharaman announced the removal of basic customs duty on components and parts required for manufacturing certain aircraft. “I propose to exempt basic customs duty on components and parts required for the manufacture of civilian, training and other aircrafts,” the finance minister said.
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She also announced duty relief for defence-related maintenance. “It is proposed to exempt basic customs duty on raw materials imported for manufacture of parts of aircraft to be used in maintenance, repair, or overhaul [MRO] requirements by units in the defence sector,” Sitharaman said.
The duty exemptions are aimed at reducing input costs for aircraft manufacturing and maintenance, areas that currently depend heavily on imports. India sends a large share of maintenance, repair and overhaul work overseas, adding to operating costs for airlines. The exemptions are intended to improve the economics of carrying out this work domestically and support the growth of local suppliers and MRO facilities.
Ashish Chhawchharia, partner and aviation industry leader, Grant Thornton Bharat, said the duty exemptions would “lower input costs, making aircraft acquisition and upkeep more affordable while strengthening India’s domestic MRO capability”.
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He added that with passenger traffic projected to reach 665 million annually by FY31, cost efficiency and local capacity are critical. “The intent is clear to boost India’s aircraft manufacturing and MRO industry and position India for a larger role in the global aviation sector,” Chhawchharia said.
Venkatesh Mudragalla, co-founder and chief operating officer at Jeh Aerospace, added the duty exemptions would “improve cost competitiveness across the aviation manufacturing value chain”, adding that sustained policy continuity would be critical to strengthening India’s position in global aerospace and defence supply chains.
On the defence side, the Budget allocated Rs 63,733.94 crore under capital outlay for 'aircraft and aero engines'. Additional funding was provided for prototype development and technology projects under defence manufacturing programmes, alongside continued emphasis on domestic production of military and transport aircraft.
The Budget allocated Rs 2,102.87 crore to the Ministry of Civil Aviation for 2026-27. This included Rs 550 crore for the Regional Connectivity Scheme, which focuses on reviving unserved and underserved airstrips, particularly in remote and north-eastern regions.
Regulatory oversight was also strengthened, with Rs 342 crore allocated to the Directorate General of Civil Aviation and Rs 114 crore to the Bureau of Civil Aviation Security. Funding was provided for pilot training institutions, including the Indira Gandhi Rashtriya Udaan Academy and the National Aviation University.
Airport infrastructure development will continue to rely largely on internal and extra-budgetary resources, with the Airports Authority of India estimated to deploy Rs 4,699.92 crore for expansion and upgrades.
The finance minister referred to seaplanes under tourism initiatives aimed at strengthening last‑mile connectivity. Sitharaman also announced incentives to promote domestic manufacturing of seaplanes and said a new viability gap funding (VGF) scheme would be introduced to support operations on routes that are not immediately commercially viable.
“To enhance last-mile and remote connectivity, and promote tourism, I propose to give incentives to indigenise manufacturing of seaplanes,” she said, adding that a seaplane VGF scheme would support operations where routes are not immediately commercially viable.
However, aviation consultant Mark Martin, founder and chief executive officer of Martin Consulting cautioned that manufacturing incentives alone may not be enough to make seaplane operations viable as the Budget did not address the infrastructure required to support seaplane services.
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“Seaplane manufacturing is a positive step, but no announcement was made for seaplane infrastructure and seaports,” Martin said. He described the approach as “cart before the horse”, adding that India would need well-structured seaports with jetties, piers and slipways across coastal cities to enable regular operations of such aircraft.
Aviation-linked logistics also featured prominently. The Budget removed the Rs 10 lakh per consignment value cap on courier exports, a move expected to support cross-border e-commerce and express logistics.
Balfour Manuel, managing director of Blue Dart, said the duty exemption on aviation components was “especially important for the express logistics ecosystem, where aircraft uptime and maintenance efficiency directly impact time-definite delivery performance”.
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He added that reforms in cargo infrastructure, multimodal connectivity and customs processes would help reduce logistics costs and improve export competitiveness.
Tourism as a demand driver
Tourism-related measures in the Budget were positioned as complementary to aviation growth. These included plans to set up a National Institute of Hospitality, a pilot programme to train 10,000 tourist guides across 20 destinations, and the creation of a National Destination Digital Knowledge Grid to digitally document cultural, spiritual and heritage sites.
Aalap Bansal, partner at KPMG India, said the integration of digital tourism platforms with infrastructure such as seaplanes and sustainable travel corridors could help generate higher-value tourism and local employment.
"The integration of a 'National Destination Digital Knowledge Grid' with tangible infrastructure—like the new Seaplane VGF scheme and sustainable trekking corridors—creates a premium ecosystem. We are moving towards an era where India’s 'Orange Economy' and heritage sectors become significant employment engines for local communities," Bansal said.
The aviation push comes amid rapid growth and tighter scrutiny. Passenger traffic has surged, airlines have placed record aircraft orders and airport infrastructure has expanded quickly. At the same time, recent operational disruptions have highlighted the limits of high aircraft utilisation and lean staffing models.
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Speaking at Wings India 2026 in Hyderabad this week, Prime Minister Narendra Modi said the government would expand regional air connectivity, including seaplane operations, to improve access to remote areas.
“Air travel was once limited to an exclusive club. Today, India has become the world’s third-largest domestic aviation market,” the Prime Minister said, adding that airlines had placed orders for more than 1,500 aircraft and that airport infrastructure had expanded to over 160 airports.
