India bets on aviation, cargo reforms; stakeholders remain cautious

India’s aviation sector is undergoing a deeper transformation. For years, growth was measured by fleet orders, new routes and rising volumes, while the underlying financial, regulatory and cargo architecture remained constrained. Now, policy direction is shifting towards strengthening domestic aircraft leasing, improving legal certainty for global financiers, unlocking faster cargo flows and enabling higher-value exports.

For decades, India’s airlines have been tenants in their own skies, leasing aircraft from Dublin, Ireland or the United States, sending billions in foreign exchange abroad. The International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City, also called GIFT City, was conceived to reverse this capital flight, but the initial climb was steep.

“We started from almost zero, rather negative. There was no industry called aircraft leasing and financing in India. Now, more than 34 lessors are set up.”
Ashutosh Sharma, IFSCA

From dependency to domestic ownership
Ashutosh Sharma, Chief General Manager – Development at the International Financial Services Centres Authority (IFSCA), frames this transformation. “When we started, there was no industry called aircraft leasing and financing in India,” he says. “Now, more than 34 lessors are set up.”

The emphasis is not merely on presence, but on activity. According to Sharma, leasing through IFSC has already extended to engines and auxiliary power units, critical assets in the aviation value chain. “Actual purchasing of aircraft has happened; ownership of aircraft is happening in IFSC,” he adds.

The banking ecosystem, often cited as a missing pillar in early discussions, has expanded significantly. “We have 37 banks here now. The asset size of these banks is more than $100 billion,” Sharma notes. “Some of the banks have started doing aviation leasing financing transactions.”

However, it was also important to address the long-standing concerns around creditor rights and aircraft repossession, giving global lessors greater certainty that their interests would be protected under Indian law. The passage of the Protection of Interests in Aircraft Objects Act, 2025, effectively implementing India’s Cape Town Convention commitments, has been central to this ambition. Sharma calls it “very strategic.” “It has strengthened the positioning of GIFT IFSC in terms of trust.”

“Great that we have legislation in place. It’s yet to be tested. We have to see how quickly and efficiently they can bring about the commitments that India has made.”
Neha Singh, Trilegal

Neha Singh, Counsel at Trilegal, agrees that the legislative underpinning was long overdue. “Cape Town Convention was not underpinned by the Indian legislative framework. That’s the reason why there were loopholes in its implementation,” she explains. The new Act aligns domestic insolvency processes with international commitments. “The aircraft objects will be out of the view of the Insolvency and Bankruptcy Code, 2016 (IBC).”

Ajay Kumar, Managing Partner at KLA Legal Advocates & Solicitors, describes the shift as a confidence-building measure for global financiers. “From the Chicago Convention to effective implementation of the Cape Town Convention and the enactment of the Protection of Interests in Aircraft Objects Act, 2025, India has instilled a great deal of confidence in the international leasing community.”

For lessors and financiers, this is about enforceability, the ability to repossess assets within a defined timeframe. Singh is cautiously optimistic. “Great that we have legislation in place. It’s yet to be tested. We have to see the efficiency of the legal framework. How quickly and efficiently can they bring about the commitments that India has made?”

Yet, not everyone agrees that India’s repossession framework was as fundamentally fragile as often portrayed. Vandana Aggarwal, Chairperson, IFSCA Standing Committee on Aircraft Leasing and Financing at GIFT IFSC and former Senior Economic Advisor to the Ministry of Civil Aviation, argues that the “risk narrative” around India has frequently been overstated.

Aggarwal points out that many of the difficulties cited by lessors stemmed not from the implementation of aviation law and DGCA instructions alone, but from the financial collapse of specific low-cost airlines and the interplay of dues of these airlines, such as taxes, airport charges, etc. It is also important to consider the contractual terms and conditions for repossession covering liens and mortgages negotiated by the parties concerned. She recalled that the regulatory regime for repossession and re-export of aircraft that had been leased from overseas lessors and financiers by Jet Airways had very adequately addressed the issue of ease and swiftness of repossession of about 100 aircraft, along with payment of outstanding dues. By enabling the redeployment of these aircraft in India, it was simultaneously ensuring that aircraft capacity in the Indian skies did not get sucked out, and passenger/ cargo prices did not soar when this airline collapsed.

“The legal and administrative framework was not absent,” she argues. “But the system required clearer alignment and predictability.” With the Protection of Interests in Aircraft Objects Act and Rules now in force, she believes there is no room for this narrative gap between perception and legal reality, in letter and in spirit.

In the Union Budget 2026, the government has extended the tax holiday for IFSC units from 10 out of 15 years to 20 out of 25 years. While the extended tax holiday provides an immediate incentive, Singh cautions that long-term consistency matters more than temporary relief.

Sharma argues that the latest announcements have addressed concerns around certainty and long-term tax clarity. “Post the tax holiday, the tax rate will be 15 percent. Earlier, people used to ask what the tax rate would be after the holiday period. Now it is very predictable.”

Kumar adds that “the continuous government support, regulatory and policy reforms, tax incentives through Gift-City are bound to have a positive impact on the overall aviation ecosystem required for rapid growth in civil aviation.”

Most leasing routed through IFSC so far has been finance–led or airline-driven. When can we expect operating leases of large commercial aircraft through Gift City-IFSC?
Unnamed

A Delhi-based aviation lawyer who did not wish to be identified describes GIFT City’s progress as “partial success.” In his view, while reforms have been substantive, global lessors entrenched in Dublin have little immediate incentive to relocate. Ease of incorporation remains slower compared to competing jurisdictions, and procedural bottlenecks, from Directorate General of Civil Aviation (DGCA) deregistration timelines to customs and GST clearances, continue to shape risk perception.

He also points to a structural reality: most leasing routed through IFSC so far has been finance–led or airline-driven. Operating leases of large commercial aircraft, the real litmus test of ecosystem maturity, remain limited. While several entities have established a presence in GIFT City, the participation of the world’s largest aircraft lessors remains limited, and transaction volumes are yet to reflect full-scale operating lease activity.

“In a supply-constrained environment, are airlines willing to risk uncertainty over aircraft and engine availability after eight or twelve years? You would rather secure ownership or structured finance arrangements that assure continuity of air service.”
Vandana Aggarwal, GIFT IFSC

Aggarwal, however, questions the emphasis being placed by vested interests on operating leases alone as the benchmark of ecosystem maturity of GIFT-City IFSC. With global supply constraints and delivery delays at Airbus and Boeing, and engine shortages reshaping fleet strategies, airlines are increasingly recalibrating their capital structures. “In a supply-constrained environment, are airlines willing to risk uncertainty over aircraft and engine availability after eight or twelve years?” she asks. “You would rather secure ownership or structured finance arrangements that provide assurance of continuity of air service.”

She points out that IndiGo has also moved toward acquiring owned aircraft. Air India has hitherto also adopted finance-leasing structures for widebody acquisitions. These major carriers are signalling that their capital strategy is evolving beyond pure or vanilla operating leases, and the ecosystem has been well-tuned to industry needs. “The market itself is changing,” she says. “We must balance flexibility with long-term fleet certainty.”

“The gains are ecosystem-wide: airports benefit through landing and parking charges; air navigation revenues rise; fuel and catering demand grow. The biggest benefit will be the airline as transhipment cargo improves freighter load factors.”
Keku Bomi Gazder, Aviapro Logistics Services

Can India finally become a transhipment hub?
If GIFT City addresses capital flows, the Bureau of Civil Aviation Security (BCAS) waiver on double screening addresses cargo movement bottlenecks. For years, transhipment through Indian airports was structurally uncompetitive. For instance, international-to-international cargo faced rescreening requirements, extending minimum connection times to nearly 24 hours in some cases. The new approval of Transfer Cargo Security Hold Areas (TCSHA) changes that.

Debajyoti Bagchi, Vice President – Business Development at TT Group, calls it “a game changer.” “There is not going to be any double or re-screening process,” he explains. “It is definitely going to reduce the minimum connection time and remove the operational cost for the screening.”

For Keku Bomi Gazder, MD & CEO of Aviapro Logistics Services, India’s transhipment journey is not optional; it is structural. With the industry targeting 10 million metric tonnes of cargo by 2030–31, domestic production alone will not suffice. “That target cannot be fulfilled by domestic production alone. You will need transhipment,” he states.

The gains, he argues, are ecosystem-wide: airports benefit through landing and parking charges; air navigation revenues rise; fuel and catering demand grow. “The biggest benefit will be the airline,” he says, pointing out that transhipment cargo improves freighter load factors. “To me, it is a huge win for everybody in the ecosystem.”

He also notes a shift in institutional behaviour; airports are now engaging the government on expanding traffic rights, signalling recognition that transit growth is central to viability.

His warning is strategic: “If you don’t do transhipment, your neighbouring countries will do it. Your loss is somebody else’s gain.”

Vasudevan Sundaramurthy, Head - Aviation, Travel and Tourism - India and APAC, ICF, thinks the BCAS waiver on double screening is a big step with a material impact on dwell time and costs. “It was a long-pending demand from cargo handlers and carriers. Major airports have space to allocate for separate handling areas and the ability to process transhipment cargo in these zones without additional screening, which can help shave 2-4 hours off dwell time.”

“I am against just drawing a line on the cement, as long as it is clearly traced, clearly tracked, we should not say this has to be there.”
P. Balasubramanian, ACCIS

Yet, optimism is tempered by implementation realities. P. Balasubramanian, Founder & CEO of ACCIS, views the reform as positive but incomplete. “It’s a big move,” he acknowledges. His core concern is operational rigidity. India’s cargo terminals, he argues, remain segmented by legacy processes, export zones here, import zones there, reducing flexibility. “I am against just drawing a line on the cement, as long as it is clearly traced, clearly tracked, we should not say this has to be there.”

Security concerns, Gazder acknowledges, are legitimate. “We live in a country where we have threats,” he says. But he cautions against inertia. “There is a difference between saying I have a threat and doing nothing, and saying I have a threat but finding a way to mitigate it.”

On the BCAS waiver and dedicated transfer areas, Gazder stresses competitiveness. “Anytime you want to get business, you have to be competitive in the global market. If you ask me to build separate terminals or additional infrastructure, how am I going to be competitive?”

Also, warehouse capacity, CCTV-compliant zones, airside infrastructure and integration with digital systems will determine whether the waiver translates into throughput.

According to Sundaramurthy, what may make the waiver more effective and comparable with other global hubs like Singapore or Hong Kong is to align the Indian Customs Electronic Gateway (ICEGATE) fully with global platforms and make the entire documentation process completely paperless, with only random inspections done based on customs intel. “That would make Indian airports preferred hubs for certain types of transfer cargo, particularly e-commerce shipments, which are highly sensitive to on-time delivery,” he added.

“Ability to ship items as courier packages reduces paperwork and operating costs while enhancing throughput for MSMEs. Also supports faster e-commerce shipments, particularly for D2C businesses which handle time-sensitive cargo.”
Vasudevan Sundaramurthy, ICF

MSMEs, e-commerce and capacity realities
Announced during the Union Budget 2026, the removal of the ₹10 lakh cap on courier exports marks a significant policy shift aimed at mainstreaming MSME and e-commerce shipments through the air cargo channel, removing an artificial ceiling that had constrained high-value express exports.

Sundaramurthy ⁠calls the removal of the cap ‘fantastic news’ for exporters in general and MSMEs in particular. “On average, 50-80 percent of revenues of MSMEs in auto components, textiles, leather and jewellery businesses come from exports. The ability to ship items as courier packages reduces paperwork and operating costs while enhancing throughput. Also supports faster e-commerce shipments, particularly for D2C businesses which handle time-sensitive cargo,” he said.

Bagchi describes it as “a great initiative because it is going to support the MSMEs' global market and e-commerce.” By lifting the ceiling, India expands the value bandwidth of express cargo, potentially increasing yield per shipment and encouraging higher-value exports. From a macro perspective, the move aligns with India’s digital commerce narrative. Higher permissible values increase the attractiveness of air freight for small manufacturers seeking global reach.

“Express cargo clearance systems and ICEGATE must be fully integrated. Without proper integration, tracking becomes difficult, and clearance timelines will increase significantly.”
Debajyoti Bagchi, TT Group

But here again, execution risks loom. Balasubramanian underscores that liberalisation without systems readiness can stall. “Customs digitisation definitely would go a long way. If these indications are near the door, airline capacity will immediately come,” he says, arguing that confidence in clearance systems triggers a supply response.

Bagchi identifies three operational pressure points: digital platform integration, infrastructure and belly capacity. “Express cargo clearance systems and ICEGATE must be fully integrated. Without proper integration, tracking becomes difficult, and clearance timelines will increase significantly.”

Finally, capacity constraints cannot be ignored. “Eighty-five percent of this movement actually happens on belly capacity,” Bagchi notes. Limited freighter presence in the domestic network means passenger aircraft carry the bulk of express cargo. Congested hubs and slot limitations could dampen the reform’s immediate upside.

Balasubramanian frames it succinctly: government liberalisation is fair. But infrastructure, digitisation and capacity must scale in parallel. The policy direction is clear, but India’s rise to top-tier aviation status now hinges on fast, disciplined execution across infrastructure, digital systems, customs efficiency and large-scale leasing participation.