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NEW DELHI  - India's finance minister on Monday proposed tax benefits for foreign aircraft lessors, as one of the world's fastest-growing domestic aviation markets looks to establish a local leasing industry.

Nirmala Sitharaman in her budget speech proposed a tax holiday for aircraft-leasing companies and tax exemptions for airlines paying lease rentals to foreign lessors if they choose to be based in the country's upcoming international finance hub.

India is developing an offshore finance hub called Gujarat International Finance Tec-City, or GIFT City to attract foreign investors with close to zero tax, and top-notch infrastructure in an effort to compete with Hong Kong and Singapore.

India's air travel market is dominated by budget airlines like Interglobe Aviation's IndiGo and SpiceJet Ltd that have hundreds of new planes on order from Airbus and Boeing.

The planes are typically bought on sale and leaseback arrangements with lessors that are based in tax-efficient jurisdictions like Ireland, which exposes domestic airlines to foreign currency fluctuations. China is also a major player in the multi-billion dollar aircraft leasing industry.

The plan to set up a local aircraft leasing industry was first announced in 2019, but progress has been slow, said Sachit Jolly, partner at Indian law firm DMD Advocates.

"This should encourage leasing companies to set up shop, but this lackadaisical attitude of not even notifying regulations for two years should give way to a more proactive approach to make GIFT City and the aircraft-leasing business competitive," he said.

Overall, this is a good move but it may not result in well- established lessors coming into India overnight, said Nitin Sarin, managing partner at law firm Sarin & Co, adding it will benefit newer and smaller lessors like helicopter fleet owners and turbo prop lessors.

(Reporting by Aditi Shah; editing by Euan Rocha, Larry King)