Why Modi ki guarantee of plane-making hub in India is more utopian than practical

Among the many Modi-ki-guarantees in the BJP manifesto, one goes by the name "making Bharat a global aviation manufacturing and MRO (maintenance, repair and operations) hub."

The "guarantee" promises to develop a passenger aircraft and design a 'Policy for Aerospace Manufacturing' in the country. The move to set up a commercial aircraft manufacturing unit is quite lofty as an expectation, but as a "guarantee," it looks utopian.

The Saras precedent

The previous government had a shot at developing a commercial aircraft, but even after three decades, the 19-seater Saras is still taking wings. The goalpost for its induction into the Indian Air Force keeps shifting for various reasons ranging from lack of funds to policy changes.

The National Aerospace Laboratories (NAL) designed a 19-seater Saras and has so far built two prototypes. According to various reports, the production cost for the Saras is around $30 million (Rs 250 crore), and each aircraft costs around Rs 50 crore. However, this project was floated in 1991 by one of the previous governments, not the current BJP government.

Tough competition

While it may still be possible to pick up where the previous governments left off with respect to developing a small commercial aircraft, finding buyers from other countries amidst tough competition from Dornier, Embraer, and ATR might be a challenge.

The BJP's confidence in setting up a commercial jet manufacturing unit arises because quite a few Indian companies and the public sector Hindustan Aeronautics Ltd (HAL) have been supplying components and doors to Airbus and Boeing.

While this is laudable, more is needed to build a commercial aircraft. Boeing and Airbus sourced a total of $1.6 billion worth of parts. Only about 10 companies directly supply these manufacturing giants; the rest are in the MSME (micro, small and medium enterprises) segment. 

The challenges are aplenty:

Development cost: To build a full-fledged commercial aircraft that can compete with an A320 or its rival, the B737, for domestic operations, massive capital investment, often running into billions of dollars, is required. For context, Boeing and Airbus each spend approximately $15-20 billion on research and development alone.

According to a CII-PwC report published over a decade ago, the Indian government will have to invest between $200 billion and $300 billion over the next 15-20 years to develop a full-fledged commercial aircraft and an ecosystem around it.

The ongoing expenses of operating a commercial aircraft manufacturing facility must also be considered. They include substantial capital investment, cutting-edge technology, robust infrastructure, and recurring operational costs.

These operational costs include expenses for sustainable aviation fuels, development of new aircraft technologies, research and development activities, labour, materials, and maintenance.

These expenses can vary widely, influenced by the facility's scale, the technology implemented, and the regulatory landscape. The project also requires a network of thousands of small and big subcontractors.

For example, the development of the Boeing 787 Dreamliner was expected to cost around $5.5 billion, but it took nearly a decade for Boeing to bring it to the market, with the total cost going up to around $22 billion. The Airbus A350 cost almost $10 billion.

This was despite both Boeing and Airbus having established robust ecosystems of vendors across several countries and having set up their operations several decades ago.

Limited scale and experience in commercial aviation: While India has a robust presence in aerospace, defence, and space, it has limited experience in commercial aircraft manufacturing. The existing industrial base primarily supports military aircraft and space vehicles, which differ significantly from commercial aircraft in design, scale, and production.

Supply chain and ecosystem development: Developing a supply chain for commercial aircraft manufacturing is a massive endeavour. India needs a mature commercial aviation ecosystem, including high-quality aerospace-grade materials and parts suppliers. Building this ecosystem from the ground up would require significant time and investment.

Taxation: Along with these investments, the government must make several changes to the taxation structure. For example, imported aerospace components are subject to multiple taxation layers, making locally manufactured goods less competitive. Imported supplies of components are subject to a lower incidence of taxes than locally supplied goods.

Skill gap: While India graduates around 15 lakh engineers annually, only a tiny fraction have the specific skills required for the aerospace industry, particularly in advanced manufacturing techniques necessary for commercial aircraft.

Entry barriers: The commercial aircraft market is dominated by well-established players with deep technological capabilities and extensive customer bases. New entrants from India would face high barriers to entry and competitive pricing in the commercial aircraft market.

Economic cycles: The aerospace industry is highly cyclical, with demand closely tied to global financial conditions. For instance, the report notes the impact of economic downturns on global aerospace demand, which would directly affect India's nascent aerospace industry.

Technological catch-up: Competing with giants like Boeing and Airbus, which invest heavily in technology and innovation, would require India to rapidly advance its technological capabilities in materials science, propulsion systems, and aerodynamics.

Cost competitiveness: Although labour costs in India are lower, high material costs, import duties, and production inefficiencies can offset total manufacturing costs.

Practical hurdles

While the BJP's ambitious "Modi-ki-guarantee" to make India a global hub for aviation manufacturing and MRO is visionary, the practical hurdles it faces are substantial.

The lessons learned from the prolonged development of the Saras aircraft underline the challenges of such an enormous undertaking. India's nascent commercial aircraft manufacturing aspirations must contend with a range of formidable obstacles, from the need for massive capital investment and advanced technological capabilities to developing a comprehensive supplier ecosystem and overcoming regulatory and market entry barriers.

Moreover, with global giants like Boeing and Airbus dominating the market through decades of consolidated growth, technological innovation, and established supply chains, India's entry into this arena demands significant financial resources and a strategic overhaul of its aerospace policy and infrastructure.