The Federation of Indian Chambers of Commerce and Industry (FICCI) has called for policy changes to make the country a global aviation finance hub by 2040.
In its ‘Vision 2040’ document, which was prepared in conjunction with KPMG, FICCI notes that around 70% of India’s privately-owned carriers rely on operating leases to finance their aircraft, which is set to continue.
However, with no domestic lessors this results in an annual cash outflow of around $2.4 billion, while Indian carriers that raise most of their revenues in rupees are significantly exposed to currency movements against the US dollar.
It also notes that amid growing trade tensions, foreign lessors could be influenced by their government to restrict the use of aircraft by Indian carriers.
“These challenges will only increase with time, [until] India develops its own leasing industry. This is no more an option, but a necessity,” the report states.
“The domestic industry can be built by large Indian institutions on their own or in collaboration with global players, like in the base of insurance industry.”
To facilitate that, it recommends that the government implement policy and tax reforms, make it easier for financiers to do business in India, and provide seed funding to develop an indigenous financing industry.
It also notes that India would need to create concessional tax arrangements, mirroring those offered by Ireland, Singapore and Hong Kong. That would have to be supported by a network of double-taxation treaties with other countries to facilitate cross-border leasing.
FICCI points to China’s progress in air finance as a leading light for the development of its own sector.
“China has successfully been able to create a local aviation leasing industry with strong support from its government and the government-owned banks. It is not impossible.”
Boldly, it predicts that by 2040 for “almost 90%” of aircraft ordered by Indian carriers to be financed by domestic entities.
"Most of the leading aviation finance companies will establish or expand their operations in India over the next decade. They along with Indian financial institutions will leverage opportunities in India, South Asia and beyond," it adds.
In the short term, FICCI has also called for greater practical implementation of the provisions of the Cape Town Convention to make it easier for lessors to deregister and repossess aircraft.