Unification of GST Slabs and Aircraft Fleet Expansion Expected to Boost India’s MRO Industry to $4 Billion

Union Minister for Civil aviation, Shri Rammohan Naidu emphasised the government’s commitment to create a robust environment for both domestic and international airlines to access world-class MRO facilities in India. Addressing the concerns raised regarding the challenges faced by the MRO sector, the minister stated in Lok Sabha yesterday “We are not only focusing on the needs of Indian airlines but also aiming to attract international carriers to use our MRO services, including in strategic locations like Thiruvananthapuram”

Government of India has recently announced the unification of GST slabs for MRO components and services, which will facilitate the integration of domestic MROs with global value chains. The recent order by domestic airlines for over 1,100 aircraft is expected to double the size of India’s MRO industry from $2 billion to $4 billion over the next seven years.

During his address in Lok Sabha yesterday, Union Minister, Shri Rammohan Naidu underlined key initiatives taken by the Ministry of Civil Aviation to strengthen the MRO sector:

1. Demand for MRO Services: The Minister acknowledged the growing demand for MRO services in India and expressed the government’s ambition to cater not only to the domestic fleet but also to international airlines. “India’s geographical advantage allows us to offer MRO facilities to numerous international airlines, making us a competitive global player,” the Minister added.

2. Integration into Global Value Chains: The Minister addressed concerns about the MRO industry’s integration into global value chains, affirming that efforts are underway to harmonize Indian MRO facilities with international standards. “We are committed to ensuring that our MRO sector aligns with global practices, making India a preferred destination for international airlines,” the Minister said.

3. PLI Scheme for MROs: The Minister highlighted the potential of the Production Linked Incentive (PLI) scheme to drive growth. He said that depending on the industry demand, the Government could consider extending a PLI scheme to the MRO industry to further accelerate its development.

4. GST Reforms: A significant reform in the GST structure for MRO services was highlighted by Ram Mohan Naidu. 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. But a landmark decision was notified on 12th July 2024 whereby a uniform IGST @5% shall be applicable for all parts of aircraft/ aircraft engines and APU irrespective of the Chapter of the Custom Tariff Act, 1975 under which the item may be covered. “This historic decision, effective from July 15, 2024, simplifies the taxation process and is projected to propel the MRO industry towards a $4 billion valuation by 2031,” the Minister said.

5. Support and Incentives for MRO Facilities: The Ministry of Civil Aviation will facilitate the stakeholders across India to establish MRO facilities for both domestic and international airlines. The government is committed to provide all policy and regulatory support to ensure the success of these initiatives.

6. Customs Duty Exemption and FDI Facilitation: As part of the announcements in the Union Budget, the government has extended the period for exporting goods imported for repairs from 6 months to 1 year. The customs duty on tools and toolkits has already been exempted. Additionally, the government has allowed 100% Foreign Direct Investment (FDI) via the Automatic Route for MROs, aimed at achieving the best possible Turn Around Time (TAT).