Union Budget 2026 will be presented by Finance Minister Nirmala Sitharaman on Sunday, 1 February 2025. All eyes will be on key announcements and fund allocations for different sectors like Defence, Railways, Aviation and others for the new fiscal year.
One of India’s crucial sector aviation industry, is also expecting major reforms and announcement especially when the industry is facing multiple challenges. Fiscal year 2026 has come with multiple challenges for the aviation industry, like the Air India tragic Ahmedabad flight crash, Delhi airport technical glitch, followed by the IndiGo flight disruptions in December.
As per IBEF.org, the domestic aviation market is the third largest globally, which has witnessed a consistent rise in demand in the last few years, supported by rising disposable incomes, increasing preference for air travel, rapid network expansion and urbanisation. The aviation sector has witnessed expansion in its network from 74 airports in 2014 to 162 as of September 2025. Meanwhile, Indian airports saw 414 million passengers in FY25, which is expected to increase further after the addition of Navi Mumbai, Jewar and Bhogapuram airports this year.
Despite these upbeat numbers, the credit rating agency ICRA report indicates that the aviation sector could face losses in the range of ₹17,000 to ₹18,000 crore in FY26, compared to a ₹5,600 crore loss in the previous fiscal year, amid challenges like rising jet fuel prices, a large number of grounded aircrafts impacting operations and fall in the Indian rupees compared to US dollar.
Amid this mixed backdrop, industry experts, passengers and investors have a lot of expectations from the Union Budget 2026 for the aviation industry growth. Here is a brief overview:
Expansion of the airport infrastructure
Experts believe the government will continue to expand its current airport infrastructure portfolio through higher fund allocations. Budget 2026 will focus on increasing regional connectivity through the setup of new airports in tier-2 and tier-3 cities, and expanding capacities at existing airport as part of the government initiative Ude Desh ka Aam Nagrik (UDAN), which focuses on affordable and reliable air connectivity.
New airline licenses to break the monopoly
According to experts, the government could announce significant measures in the upcoming budget to increase the number of airlines and make the sector more appealing to new companies and investors.
After the IndiGo flight disruption in December, the Indian government granted No Objection Certificates (NOCs) to three new airlines: Shankh Air, Al Hind Air, and FlyExpress, to boost competition and disrupt the current duopoly of IndiGo and Air India. These airlines are expected to start operations in 2026 and will improve regional connectivity.
Besides new licenses, the government could grant tax breaks and exemptions for the initial few years to new companies.
Reduced taxes on Aviation Turbine Fuel (ATF)
Aviation turbine fuel (ATF) is the highest cost for the Indian airlines industry, accounting for 30 to 40% of the total operating costs. In January 2026, ATF prices were 2.2% higher YoY, but 7.2% lower sequentially. Hence, any significant announcement with respect to the rationalisation of ATF taxation, like bringing ATF under GST or lower value-added tax (VAT) from state governments, could provide significant relief to airline companies.
Budget 2026 could also make announcements regarding improving air-traffic management infrastructure and domestic maintenance, repair, and overhaul (MRO) capabilities and new mesures to improve technical training capacity. Overall, going by the experts view and key expectations Union Budget 2026 could act as a catalyst for the Indian aviation industry future growth.