The legal decks have been cleared for aircraft leasing businesses to take wings out of Indian shores (GIFT IFSC in Gujarat) with the GIFT City regulator International Financial Services Centre Authority ( IFSCA) on Friday issuing a ‘ Framework for Aircraft Operating Leases’.
This will enable the aircraft operating lease businesses to be set up in International Financial Services Centres (IFSCs) and address the projected market size of more than $ 50 billion for aircraft leasing in the country. Currently, India has only one IFSC in GIFT City in Gujarat.
Conditions
An entity offering operating lease for an aircraft should have minimum capital of $ 0.2 million and the operations can be set up in IFSCs by way of a company or a Limited Liability Partnership or a Trust or in any other form as may be specified by the IFSCA, according to the framework announced on Friday. The lessors will be allowed to transact in freely convertible foreign currency only . They could, however, defray their administrative expenses in Indian Rupees by maintaining a separate INR account.
It may be recalled that Finance Minister Nirmala Sitharaman had in her July 2019 budget speech said that time is ripe for India to enter into aircraft financing and leasing activities from India shores, as this is critical for “development of self-reliant aviation industry” and creating, “aspirational jobs in aviation finance, besides leveraging the business opportunities available in India’s Financial Special Economic Zone namely, International Financial Services Centre (IFSC).”
Draft on aircraft leasing
In October 2020, the Finance Ministry had on the recommendation of IFSCA notified ‘Aircraft lease which shall include operating and financial lease and any hybrid of operating and financial lease of aircraft or helicopter and engines of aircraft or helicopter or any part thereof’ as ‘financial product’ under International Financial Services Centres Authority Act, 2019.
Towards this end, IFSCA had issued a consultation paper on Draft Aircraft Leasing Regulations on December 16, 2020. Based on the interest shown by various participants and the feedback of various stakeholders received, a ‘Framework for Aircraft Operating Leases’ has been issued by IFSCA on Friday.
Reacting to this move to issue the final framework for Aircraft leasing activities, Tapan Ray, MD & Group CEO, GIFT City, "The framework on aircraft operating lease would pave the way for offshore leasing entities to serve India’s hinterland demand from GIFT IFSC. The incentives announced in the budget 2021 coupled with the formation of the framework shows the Government’s commitment towards making GIFT IFSC a hub for aircraft leasing and financing activities. The participants who were waiting for the final regulations to come out can now actively consider setting up their base in GIFT IFSC.”
Tushar Sachade, Partner, PwC India said, "The regulatory framework issued by the IFSC Authority coupled with the Budget announcements on the tax front pertaining to the aircraft leasing sector will definitely give wings to create a sustainable eco-system for its operations in Gift City. This probably is India’s first firm step to become an eventual alternative to other offshore jurisdictions. We will soon see this business soaring from GIFT city"