Budget, Indo-US deal to boost Indian aircraft parts industry
The Union Budget 2026-27 in India has introduced significant measures aimed at reducing costs in the aviation sector, particularly through tax exemptions on aircraft spare parts and components. This is designed to support the ‘Make in India’ initiative, boost local Maintenance, Repair, and Overhaul (MRO) capabilities, and lower operating costs for airlines.
In the Union Budget 2026, the Finance Minister, Nirmala Sitharaman, announced a series of customs duty exemptions aimed at strengthening India’s civil and defence aviation manufacturing capabilities. The proposals include the removal of basic customs duty on components and parts used in the production of civilian training aircraft and other civilian aircraft. This measure is intended to enhance the domestic aviation manufacturing ecosystem, reduce dependency on imports, and position India as a global hub for aircraft production and maintenance.
For the defence sector, the Budget proposes exempting basic customs duty on raw materials imported for manufacturing aircraft parts used in maintenance, repair, and overhaul (MRO), as well as other operational needs of defence units. These exemptions are designed to encourage domestic production, improve cost competitiveness, and support the expansion of India’s aerospace and defence manufacturing base.
The Budget has also unveiled significant customs duty exemptions on components and raw materials for both civilian and defence aviation manufacturing. This strategic move aims to invigorate India’s aerospace ecosystem by slashing import costs, fostering local production, and diminishing overseas dependency. For the defence sector, the focus is on critical MRO operations, while civilian aircraft manufacturing will also see duty relief on essential parts, positioning India to become a more prominent global player in aircraft production and maintenance services.
The latest Budget proposals signal a determined push to reshape India’s aerospace and defence manufacturing landscape. By eliminating basic customs duties on components vital for civilian training and other aircraft, the government is directly targeting an increase in domestic production capabilities. This initiative is designed to foster a self-reliant supply chain, a move long advocated for in the strategic sector. The exemption on raw materials for defence aircraft parts, crucial for MRO operations, aims to enhance the cost-effectiveness and operational readiness of defence units. These measures collectively aim to strengthen India’s position as a hub for aircraft manufacturing and MRO services globally.
Likewise, the US-India trade deal which will be sealed soon will also fuel growth of aircraft parts manufacturing in India.
Commenting on the US lifting national security-related tariffs on Indian aircraft parts, Aravind Melligeri, Executive Chairman & CEO, Aequs Ltd., said that the interim agreement will lead to improved cash flows and enhanced cost competitiveness for the supply chain and will strengthen the operating environment for Indian suppliers and support deeper integration with US aerospace supply chains.
“At a time when the Indian industry was mentally preparing for at least 18 per cent tariffs, even though lower from the previous 50 per cent, this zero rating on certain parts is more than welcome. India’s aircraft parts and aerospace components sector, across civil and defense, has been growing sharply, with Indian suppliers now servicing major global OEMs. Global OEMs (including U.S. and non-U.S.) source over $2 billion annually worth of aerospace components and services from India,” he said. Recently, Boeing has awarded Aequs a contract to manufacture aft access doors for the Boeing 767-2C.
According to the joint statement of India and US, the US will also remove tariffs on certain aircraft and aircraft parts of India which were imposed to eliminate threats to local aluminium, steel and copper industry players. India is a major player in supply of aerospace components globally.
Salil Gupte, president, Boeing India, South Asia said that the company has long advocated for a zero-for-zero tariff approach in defence and aerospace sector. Boeing already has around 400 aircraft orders from Indian carriers while Air India recently announced order of 30 Boeing 737 Max aircrafts.
“This deal creates momentum to extend this principle. A tariff free framework would accelerate industrial growth, strengthen national security and deliver win-win opportunities for both countries,” he said. The statement further mention that India intends to purchase $500 billion of US energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal over the next five years. About $100 billion imports is expected to come from aircrafts and aerospace supply chains.
India’s aircraft parts and aerospace components sector, across civil and defense, has been growing sharply, with Indian suppliers now servicing major global OEMs, (including U.S. and non-U.S.) which source over $2 billion annually worth of aerospace components and services from India. With stronger market access following this trade agreement, India’s share of US aerospace parts sourcing is poised to expand in the coming years.
