US removes tariffs on aircraft parts, giving major boost to India's aerospace and MRO industry

Aircraft engine

• US removes tariffs on Indian aircraft parts
• This would give a boost to domestic production of aircraft parts
• Budget 2026 proposed exemption on customs on aircraft parts including engines

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The United States has announced the removal of national security-related tariffs on certain Indian aircraft and aircraft parts, a development expected to significantly boost India’s growing aerospace manufacturing and maintenance, repair and overhaul (MRO) industry. The move is part of a broader framework for an interim agreement on reciprocal and mutually beneficial trade between India and the US.

The framework, jointly announced by the two countries early on February 7, also opens the door for India to purchase aircraft and aircraft components from the US under a proposed $500 billion purchase plan. According to the joint statement, the US will eliminate tariffs imposed under proclamations that cited threats to national security, easing access for Indian aerospace products in the American market.

Industry experts said the decision comes at a critical time for India’s fledgling aerospace sector, which is being supported by a series of policy reforms and fiscal incentives aimed at building domestic manufacturing and MRO capabilities.

Reinforcing this push, Finance Minister Nirmala Sitharaman, in the Union Budget 2026 presented on February 1, announced customs duty exemptions on key components used in aircraft manufacturing. Customs duty on aircraft parts and components, including engines, has been reduced to zero to encourage domestic production of aircraft and aircraft parts.

India’s MRO industry is projected to grow to $4 billion by 2031, registering a compounded annual growth rate (CAGR) of 8.9 per cent, according to the Ministry of Civil Aviation. Despite this growth potential, nearly 80–90 per cent of India’s aircraft MRO spending currently flows to overseas facilities, largely due to the dominance of global original equipment manufacturers (OEMs) such as Airbus and Boeing and limited domestic capacity.

To address this imbalance, the government has introduced several structural reforms. New MRO guidelines issued in September 2021 abolished royalties and brought greater transparency and certainty in land allotments for MROs at Airports Authority of India (AAI) airports. Additionally, GST on MRO services has been reduced from 18 per cent to 5 per cent with full input tax credit. Transactions sub-contracted by foreign OEMs or MROs to Indian MRO firms are now treated as exports and attract zero-rated GST, while customs duty has been exempted on tools and tool kits.

These reforms are beginning to attract significant investment. In November 2025, global engine manufacturer Safran inaugurated a dedicated MRO facility for LEAP engines in Hyderabad. The facility, designed to service up to 300 engines annually, is expected to strengthen India’s domestic aviation supply chain, enhance high-precision engineering capabilities and support the growth of ancillary vendors.

Major Indian airlines are also stepping up investments. Air India and IndiGo have begun construction of large MRO facilities for civilian aircraft at Bengaluru International Airport, with investments estimated at Rs 1,460 crore and Rs 1,100 crore respectively. Each facility will be capable of handling around three wide-body and six narrow-body aircraft, leading to substantial employment generation and skill development.

Sahil Mahajan, Partner – Aviation, Airports and Hospitality at PwC India, said the combined impact of fleet expansion and policy support would be transformative. “The growth of India’s aircraft fleet from 800 to 2,500, supported by customs duty exemptions for civilian and MRO parts, considerably boosts domestic MRO capabilities—unlocking investment and strengthening self-reliance,” he said.

With US tariff relief, favourable budgetary measures and rising investments from global and domestic players, India’s aerospace and aircraft MRO industry is poised for accelerated growth and deeper integration into global aviation value chains.