Plans to set up an aircraft leasing system in India will continue irrespective of a change of government, according to Vandana Aggarwal, former senior economic advisor to the civil aviation ministry.
“In the history of economic reforms, there are no reversals – no matter which government comes in place – in something which is good and lucrative and profitable with all stakeholders vying for it. I see no room for any reversal of any sort or even a slowdown,” Aggarwal said Tuesday during a session on attracting aircraft lessors to India at a webinar organised by ishka with Acumen, Bird and Bird, Investec, KPMG and Sarin & Co.
Aggarwal was a key official tasked with setting up and implementing a proposal for kickstarting aircraft leasing in the country. Indian carriers currently lease aircraft from Ireland and Singapore.
In 2019, the civil aviation ministry had identified the International Financial Services Centre (IFSC) in GIFT City, Gujarat, for developing the aircraft leasing and financing ecosystem in the country. The IFSC was started in 2015 to support financial service transactions such as aircraft leasing that are currently carried on outside India in a bid to attract such business to India.
Emphasising the role of the IFSC, Aggarwal said a domestic lessor has contracted to lease an aircraft from a foreign manufacturer.
“Another lessor has brought in a plane in advance and subject to all the clearances happening very quickly, that aircraft is ready to be leased out,” Aggarwal said.
Dipesh Shah, head of business development at the International Financial Services Centres Authority (IFSCA), said 15 companies were in very advanced stages of submitting their applications to IFSC.
The need for aircraft leasing was felt as India is expected to get over 1,000 aircraft by 2025-2026. Unlike abroad, almost 70 percent of the aircraft operating in India are on lease.
When the IFSC was set up, the finance ministry was of the view that if the centre was not developed, then India could avail of $120 billion in international financial services from offshore centers to satisfy domestic demand by 2025.
Nitin Sarin, managing partner of Sarin & Co., said the advantage of the IFSCA was that it has the powers of various regulators.
“You do not need to run from pillar to post. You do not have to spend a lot of money on lawyers and other advisors. You have a holistic system,” he said.
According to Sarin, the only disadvantage of IFSC is that it is a young initiative.
“The first question that we get asked is: How many transactions have been done? How many companies have been set up? In leasing companies the world over, it is investors who mandate what they can or cannot do,” he said.
However, Sarin was quick to point out that many lessors are happy to come to India because they can be closer to their assets.
“At the moment, it is virtually impossible for them to monitor these assets overseas. If they are based in Ireland, then constantly monitoring their assets in India is a challenge. At the end of the day, you either do it yourself or through your own employees or you hire a third party, which costs money. This is a very price-sensitive industry and everyone would like to explore the cheaper option,” Sarin said.
Outlining the initiatives announced by the government, Bharat Jain, partner, tax & regulatory, financial services, at BSR & Co., said that any special purpose vehicle that is formed for aircraft leasing in IFSC gets 100 percent profit in deductions consecutively for 10 years in the first 15 years of operations.
“With a depreciation rate of 14 percent initially for the first four or five years they will make losses. For almost 15 years there will be no tax in India,” he said.
Jain also said that when interest is paid to overseas lenders, there is no tax on the interest portion and if the SPV were to sell aircraft in the tax holiday period, there is no tax on any gains made.
Jain was of the view that there may be a case for restoring a provision that existed before April 2020 for SPVs in IFSC, exempting tax on dividend for both the company paying the dividend and the company receiving the dividend.