India planning to classify aircraft as infrastructure in FY27 budget

The Government of India is planning to classify aircraft as infrastructure assets in the upcoming budget for fiscal year 2027.

The transition allows several benefits for the aviation sector including business aviation as the move will lead to lower financing costs, access to capital, Indian rupee-denominated financing and easier repossession.

Infrastructure classification will mean the aircraft will become part of the country’s priority sector lending list. Banks in India are mandated to lend to the priority sectors at lower interest rates.

Moreover, the move will also opens up rupee-denominated financing for aircraft financing as most of the Indian airlines currently lease planes in US Dollars.

While the financing remains a key challenge, banks’ argument for refusal to lend funds for aircraft purchases has been the poor repossession framework in cases of defaults. The move will instil confidence in financial institutions to repossess the aircraft in case of defaults  subsequently lowering the risk premium on loans.