The centerpiece of this reform is the reduction of Basic Customs Duty (BCD) on critical engine components and airframe parts from 2.5 percent to zero. This move is designed to address the long-standing grievance of the industry regarding the high cost of imported spares, which currently account for nearly 15 percent of an airline’s total operating expenditure. By eliminating this duty, the government estimates an immediate reduction in maintenance costs by approximately 3.5 percent for major operators such as Air India and IndiGo.
In a parallel move to bolster the domestic MRO ecosystem, the government has rationalized the Goods and Services Tax (GST) on all aviation-related parts to a uniform 5 percent. Previously, certain components were categorized under the 12 percent and 18 percent slabs, creating a fragmented tax structure that incentivized Indian airlines to seek maintenance services in international hubs like Singapore, Dubai, and Sri Lanka. The Ministry of Civil Aviation projects that this tax parity will help retain over 1.5 billion dollars in annual revenue within the Indian economy that was previously lost to offshore service providers.
The fiscal data supporting these changes indicates a clear objective to transform India into a global aviation hub. As of late 2025, India’s MRO market was valued at approximately 2.2 billion dollars, with a compound annual growth rate of 14 percent. Through the incentives provided in Budget 2026, the government anticipates the sector will expand to 4.5 billion dollars by 2030. This expansion is expected to generate approximately 50,000 high-skill technical jobs within the next four fiscal years.
Industry analysts observe that the timing of these cuts is critical. Fuel costs and fluctuating exchange rates have contributed to a 12 percent year-on-year increase in airline overheads. By slashing taxes on parts, the government is providing a necessary fiscal cushion. Furthermore, the budget has extended the period for the duty-free export of repaired parts to five years, up from the previous three-year limit. This adjustment facilitates a more flexible supply chain for international component manufacturers looking to establish assembly lines within India’s Special Economic Zones.
Institutional investors have responded positively to the announcement. Aviation stocks saw a collective rise of 4.2 percent in early trading on February 2, 2026. The reduction in the cost of spare parts is particularly beneficial for the fleet expansion plans of Indian carriers, which currently have over 1,100 aircraft on order. The tax relief ensures that the technical management of these new arrivals remains economically viable on domestic soil.
The Union Budget 2026 also addressed the logistics of component movement by proposing the establishment of three new dedicated aviation parts warehouses near major international airports. These hubs will operate under a simplified regulatory regime to expedite the customs clearance of time-sensitive components, further reducing the Aircraft on Ground (AOG) durations that plague operational efficiency.
This legislative pivot reflects a broader shift toward self-reliance in the aerospace manufacturing and services sector. By lowering the entry barriers for component sourcing and maintenance, the government is effectively grounding the soaring costs that have long acted as a ceiling for the industry’s growth. The focus now shifts to the implementation phase, where the speed of regulatory updates will determine how quickly airlines can translate these tax savings into lower airfares for the public.