The Hindu Business Line : Role for foreign airlines in management -- FDI in aviation may be hiked to 49 pc

THE Government is close to finalising a proposal to permit a higher foreign direct investment (FDI) of 49 per cent in the domestic civil aviation sector and also to allow foreign airlines to participate in the setting up of and management of domestic airlines.

Currently, the ceiling on FDI in the civil aviation sector is 40 per cent. Within that the equity of foreign investors has been capped at 26 per cent, with the balance reserved for the Indian promoters and institutional investors.

Sources told Business Line that the Cabinet note being prepared by the Ministry of Civil Aviation envisages not only a hike in the investment limit in the domestic aviation sector but also doing away with the earlier cap of 26 per cent which had been set within the existing rule for FDI investment in the sector.

The recommendations, if approved by the Union Cabinet, will be a major shift from the existing policy. At present, the draft civil aviation policy allows foreign equity up to 40 per cent while non-resident Indians (NRI/OCBs) investment is permitted up to 100 per cent in the domestic air transport sector. Besides, the prevailing laws bar foreign airlines from acquiring equity stake in domestic airlines.

The recommendations of the Ministry will be crucial to the formulation of the civil aviation policy which has been in the making since early 2000 when it was first circulated among the users for comments.

Earlier, in November last, the Planning Commission had recommended to the Ministry that it should consider increasing the FDI investment levels in the domestic aviation sector.

Senior Government officials said that even if the FDI investment limit were raised to 49 per cent, substantive ownership of the airlines would continue to be in Indian hands.

However, any further hike in investment limit is unlikely to be considered for a variety of reasons including the fact that if the ceiling is lifted to enable FDI investment of 51 per cent or more, the airline will lose the status of a designated Indian carrier.

Besides the proposed changes on the FDI front, the Ministry is also to recommend the constitution of an airport economic regulatory authority. At present, the draft civil aviation policy recommends the constitution of a statutory autonomous civil aviation regulatory authority to ensure safety, security and effective regulation of air transport in the country in the liberalised environment.

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