Budget 2025-26: Aviation sector seeks abolition of negative fiscal regime, infra boost

Aviation Budget Expectations

India's aviation sector, the world’s third-largest aviation market after the US and China, is hopeful that the Union government will fast-track policy measures to address operational challenges and support the sector's expansion in Budget 2025-26.

While government measures in the past 10 years have seen more Indians flying and the country becoming the third-largest aviation market in the world, infrastructure woes continue to haunt the sector. Abolition of the negative fiscal regime and adequate infrastructure are the industry's two main demands.

To reduce the burden of high fuel prices, the aviation industry, in its budget recommendations, has sought tax deduction and rationalisation to help make the sector more profitable, while seeking a priority sector lending tag for airports.

"Continued focus on policy frameworks that foster healthy competition and ease of operations will benefit the entire aviation ecosystem, helping us continue to grow and serve the diverse needs of Indian travellers," Praveen Iyer, Co-Founder and Chief Commercial Officer, Akasa Air, told Moneycontrol in an interview, ahead of the upcoming Budget.

Ashish Chhawchharia, Partner, Grant Thornton Bharat, also suggests that sustainable fuel technology and connectivity should be the government's main priorities in the upcoming budget.

"The aviation industry expects this year’s budget to allocate funds for the Ude Desh ka Aam Nagarik (UDAN) or Regional Connectivity Scheme (RCS), operationalising more greenfield airports, and sustainable fuel technology," Chhawchharia said.

Financial solutions

Poonam Verma Sengupta, Partner, JSA Advocates & Solicitors, also asked the government to come up financial solutions, like low-interest loans, to help the sector address global supply chain issues, that are affecting aircraft and engine deliveries to Indian airlines.

"Engine shortages have grounded over 100 aircraft due to delays in spare parts. In the upcoming budget, the government must consider providing financial solutions, like low-interest loans, and enhance compliance with global conventions like the Cape Town Convention to improve lessor confidence and address the GoAir insolvency fallout," Sengupta said.

Kinjal Shah, Senior VP, Corporate Ratings, ICRA, also said that the central government, in Budget 2025-26, should look to reiterate the focus on improving regional connectivity through UDAN.

New airports, connectivity, surging festive season fares

She added that the government should focus on new airports and expanding existing airport capacities at some key airports to help address the current airport infrastructure constraints and to improve connectivity with the under-served/un-served destinations to boost tourism.

Sengupta also pointed towards the hoax bomb threats, which caused massive disruptions to airline operations recently. She called for the need for more proactive measures by the authorities to address this issue.

"There is also a need to strengthen cybersecurity for airline operations as well as for passengers at airports. Another factor is the surge in air ticket prices during festive season. The Parliament's discussion on capping prices and on establishing a quasi-judicial body to regulate fares could be a positive step for consumer interests," noted Sengupta.

Aviation consultancy CAPA India has also been seeking a new policy in the backdrop of the rapid changes the industry has seen after the COVID outbreak.

"The new policy should plan for airport capacity that will last for a generation and beyond, must define an international air services strategy in line with India's national interests as well as restructuring airspace design to provide capacity for up to 8-10x of the current traffic," the aviation consultancy said in June.

The government should also dismantle the negative fiscal regime and provide adequate infrastructure, CAPA India said.

Widening losses

Indian airlines continue to struggle to make profits and are expected to post losses between $400 and $600 million in FY25, CAPA India has said.

The industry reported a loss of $300- $400 million in FY24, despite a 6-8 percent rise in domestic traffic to 161-164 million and a 9-11 percent rise in international traffic to 75-78 million.

Airline costs are expected to rise 3.8 percent in the current financial year, the consultancy said without sharing the figure for the previous year.