The Centre is considering a targeted support package to speed up the early rollout of sustainable aviation fuel, or SAF, in a move that could shape India's aviation decarbonisation strategy and industrial policy over the next several years. The proposed measures under discussion include viability gap funding for production facilities, concessional financing and support for feedstock, according to people familiar with the matter. The aim is to bridge the gap between the high cost of producing SAF and the commercial realities facing airlines and fuel makers in the initial phase of market development.
Policy Push
SAF has emerged as one of the few near-term options for cutting emissions from aviation, a sector that is difficult to electrify at scale. Unlike conventional jet fuel, SAF can be blended into existing fuel systems and used without major changes to aircraft or airport infrastructure, making it a practical transition fuel for the industry. But the economics remain challenging. Production costs are significantly higher than those of fossil jet fuel, and the availability of suitable feedstock, including used cooking oil, agricultural residues and other biomass-based inputs, remains uneven.
That cost gap is precisely what the government is now looking to address. Viability gap funding would help make early projects bankable by offsetting part of the capital burden for production plants. Concessional finance could reduce borrowing costs for developers, while feedstock support would help secure the raw material supply needed to keep plants running at viable utilisation levels. Together, these tools would amount to a demand-and-supply stimulus designed to nudge the market into existence before scale economies begin to take hold.
Market Building
The policy discussion reflects a broader recognition that SAF will not take off through market forces alone in its early years. Global experience has shown that without public support, first-generation SAF plants struggle to attract investment because of uncertain offtake, volatile input prices and thin margins. India's aviation market, one of the fastest-growing in the world, adds urgency to the equation. As passenger traffic expands and airlines seek to meet climate commitments, the pressure to secure lower-carbon fuel options is likely to intensify.
For the government, the challenge is to support the sector without creating a permanent subsidy regime. Officials are likely to be weighing how to structure incentives so they catalyse initial capacity, encourage domestic manufacturing and avoid locking in inefficiencies. The design of any package will also need to account for the diversity of SAF pathways, since different technologies rely on different feedstocks and have different cost structures. A poorly calibrated scheme could favour one route over another or fail to generate enough scale to matter.
The feedstock question is especially important in India, where competing uses for agricultural residues and waste oils can complicate supply chains. If the government moves ahead, it may need to coordinate across ministries and state-level stakeholders to ensure that raw material collection, logistics and certification systems are in place. Without that backbone, even subsidised plants could face underutilisation and cost overruns.
Fiscal Stakes
The proposal also carries fiscal implications at a time when the government is balancing industrial policy ambitions with budget discipline. Any viability gap funding or tax-linked support would need to be justified against other spending priorities, particularly if the objective is to build a domestic SAF ecosystem rather than simply lower fuel costs for airlines. Still, policymakers may view the outlay as strategic, given the potential for downstream benefits in green manufacturing, rural feedstock aggregation and export-oriented clean fuel production.
India has been positioning itself as a leader in clean energy manufacturing, and SAF could become part of that narrative if the right incentives are put in place. The sector sits at the intersection of energy transition, aviation growth and rural value chains, making it attractive from both an environmental and industrial standpoint. But the window for early policy support may be limited. If the government wants to shape the market before global supply chains harden, it will need to move quickly and with a clear framework.
For now, the discussion signals intent rather than final policy. Yet the direction is significant: rather than waiting for SAF costs to fall on their own, the Centre appears to be considering a more active role in underwriting the first wave of projects. If implemented, the package could help India establish an early foothold in a sector that is likely to become increasingly important as aviation seeks credible pathways to net-zero emissions.