India is drafting a National Sustainable Aviation Fuel (SAF) policy to meet international carbon reduction targets starting in 2027. The plan aims to lower the high cost of SAF compared to conventional jet fuel through tax breaks and viability gap funding. For investors, this shift introduces expansion opportunities for refineries and potential fuel cost pressure for airlines.
India is nearing the launch of a National Sustainable Aviation Fuel (SAF) policy as it prepares to meet the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) mandates, effective January 1, 2027. The government is planning to bridge the significant price gap between SAF and traditional aviation turbine fuel (ATF) through fiscal support, including viability gap funding and the rationalization of GST and excise duties.
SAF currently trades at two to six times the cost of conventional jet fuel. Without government intervention, this price difference would place significant pressure on airline profit margins. The proposed national policy aims to create a commercially viable environment for production, building on momentum from state-level actions. For instance, the Uttar Pradesh government approved a state-specific SAF policy in October 2026, offering incentives such as stamp duty exemptions and interest subsidies to attract large-scale production investments.
The domestic market for this fuel is projected to grow rapidly, with blending targets set at 1% for 2027, 2% for 2028, and 5% by 2030. These targets serve as a roadmap for the aviation industry to lower its carbon footprint while forcing a shift in how airlines source their fuel.
For investors, the impact of this policy transition is split between potential opportunities and operational risks. Refineries, particularly major oil marketing companies like Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL), are expected to lead the domestic production push. The government’s viability gap funding is designed to help these companies manage the high upfront capital expenditure required to retrofit refineries for SAF production.
Conversely, for airlines like IndiGo and Air India, the mandatory blending requirements represent a long-term operational cost challenge. While the policy aims to offset price disparities, airline profitability will remain sensitive to how the government manages the transition. If subsidies do not fully cover the cost premium of SAF, airlines may face margin pressure.
Execution remains the most critical risk for the sector. Developing a reliable supply chain for feedstock—such as used cooking oil—is a massive logistics and infrastructure hurdle that the industry has yet to solve at scale. Investors should monitor the final federal policy rollout for specific details on the quantum of viability gap funding, the clarity of the blending mandate timeline, and the eligibility criteria for production incentives, as these factors will dictate the commercial success of early-stage manufacturers.