In a significant move to bolster the domestic aviation industry, the Indian government has announced a series of reforms aimed at enhancing the aircraft Maintenance, Repair, and Overhaul (MRO) sector. The Ministry of Civil Aviation has unveiled measures that promise to attract foreign investment, streamline operations, and improve the competitiveness of Indian MRO services.
Minister of State for Civil Aviation, Murlidhar Mohol, revealed in a written reply to the Lok Sabha that the government has permitted 100% Foreign Direct Investment (FDI) through the automatic route for aircraft MRO services. This decision is expected to draw substantial foreign expertise and capital into the sector, potentially transforming India into a global MRO hub.
In a move to reduce costs and improve efficiency, the government has implemented a uniform 5% Integrated Goods and Services Tax (IGST) rate on imports of aircraft parts, components, testing equipment, tools, and tool-kits. This flat rate will apply regardless of their Harmonized System of Nomenclature (HSN) classification, subject to specific conditions.
The reforms extend beyond tax measures. As part of the Union Budget 2024-25, the government has extended the period for exporting goods imported for repairs from six months to one year. Additionally, the time limit for re-importing goods for repairs under warranty has been increased from three to five years, offering greater flexibility to MRO operators.
Other key initiatives include:
- New MRO guidelines, announced on September 1, 2021, abolishing royalties and ensuring transparency in land allotments for MROs at Airports Authority of India (AAI) airports.
- Reduction of GST on MRO services from 18% to 5% with full Input Tax Credit, effective from April 1, 2020.
- Treatment of sub-contracted transactions by foreign original equipment manufacturers (OEMs) or MROs to domestic MROs as ‘exports’ with zero-rated GST.
- Customs duty exemption on tools and tool-kits used in the MRO sector.
- Simplified clearance processes for aircraft parts.
These comprehensive reforms are designed to address long-standing challenges in the Indian MRO industry, which has historically struggled to compete with established hubs in neighboring countries. By creating a more favorable business environment, the government aims to not only retain domestic MRO business but also attract international clients.
The aviation sector, which has been recovering from the impacts of the COVID-19 pandemic, is expected to benefit significantly from these reforms. A robust domestic MRO industry could lead to reduced maintenance costs for Indian airlines, potentially resulting in more competitive airfares for consumers.
As India’s aviation market continues to grow, these policy changes are poised to play a crucial role in fostering innovation, efficiency, and self-reliance in the aircraft maintenance sector. The government’s proactive approach signals its commitment to positioning India as a key player in the global aviation ecosystem.
