A strong market growth rate coupled with infrastructure expansion will help the Indian civil aviation sector back on its feet as the economy recovers, according to a FICCI-PwC report.

 

Indian civil aviation sector has continued to experience high passenger growth (domestic traffic CAGR is 17 per cent from 2009 to 2011), and if the trend continues it could rank among the top three aviation markets in the world by 2020, the report added.

 

This would be a good time for global players to enter India and explore the potential of a large underserved market.

 

However, volatility in fuel prices combined with high tax on aviation turbine fuel and other national policy related issues continue to challenge the sector’s growth, the report said. The recent increase of FDI up to 49 per cent in civil aviation might also not result in substantial increase in investment since it has been imposed on the aggregate of FDI and FII. The report also recommends a hike of 26 per cent cap on FDI in defence as it has failed to attract foreign investment. India has received only $ 4 million in the past 10 years since FDI was allowed in the defence sector, while the entire economy has received over $ 180 billion.

 

According to the FICCI-PwC report, India’s military aviation sector needs better access to technology, funding and rationalise the tax and regulatory framework to keep pace with their global counterparts. The report stated that the medium and long-term perspective plans should be shared with industry in a transparent manner, without compromising on national security.

 

Dhiraj Mathur, Leader - Aerospace and Defence, PwC India said, “In the last five years there have been significant investments by large and small domestic companies that has entered the aerospace and defence industry. However, the FDI inflow has been very low.

The government needs to review the 26 per cent cap on FDI as well as streamline the various polices to promote greater investment. India’s acquisition programme and its offset policy can potentially generate investments in excess of $20 billion along with creating massive employment for skilled and professional manpower. The Government should strive to make Indian industry an integral part of the global aerospace and defence supply chain.”

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