Budget 2026 May Grant Infrastructure Status To Aircraft

The Government of India plans to classify aircraft as infrastructure assets in the upcoming Union Budget 2026-27 to encourage the growth of India's aviation sector. As per the reports by Hindu Business Line, the government's proposal would allow airlines to obtain more affordable financing when purchasing an aircraft.

Currently, Indian airlines operate over 800 commercial aircraft, with an additional 1,700 aircraft in order for growth in their fleet size.

Becoming classified as infrastructure would reduce the cost of borrowing capital and provide increased participation from lending institutions. 

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Financing Challenges for Airlines

The higher interest rates on loans and lenders' reluctance to provide financing for an aircraft mean that airlines are using leases as a means of financing their aircraft. Smaller airlines face more challenges gaining access to leases and often have to consider purchasing through outright purchases, which can be expensive.

The proposed classification as infrastructure would provide access to the priority sector lending program, which requires banks to lend to specific sectors deemed critical for the development of the economy.

Through the priority sector lending program, it should be easier for start-up airlines and smaller operators to obtain lower-interest-rate loans. Banks and insurance companies will also be able to offer airline customers longer repayment periods for loans.

Precedent from the Shipping Sector

Last year, the centre assigned infrastructure characteristics to merchant marine vessels, which set the benchmark for movable property such as aeroplanes. In the past, there were questions about how to treat merchants as merchants under the Infrastructure Act. The airlines have taken advantage of present-day treatment to mitigate foreign exchange exposure using loans denominated in rupees.

The move away from operating leases to finance leases is gaining visibility due to lenders' familiarity and comfort with risk.

Sector Growth Outlook

India's aviation fleets must rapidly increase due to the increasing number of new South American customers, as well as the increasing number of new products (both domestic and exports) being produced by the Indian government. The inclusion of budget funding support is part of this plan in the Union Budget 2026, so that fleet increases can be accomplished without rapidly increasing foreign exchange flows.

The addition of Infrastructure to the airlines will allow them to broaden their access to capital sources beyond the traditional financial institutions. Therefore, airlines will now have the opportunity to be more nimble in their purchase power as opposed to leasing power in order to maintain operational strength in the face of increasing demand.