Sunday, 3 June 2012

New proposal for FDI in aviation is on fast track


New Delhi, June 3:
Amid all the criticism on policy inaction, the Government is to soon take up a new proposal to allow foreign airlines to acquire a stake in domestic airlines. The new proposal, which addresses security concerns that have been raised earlier, is expected to come up before the Union Cabinet shortly.
Now, sources claim that various differences between Ministries, and even some political parties, have been sorted out and accordingly a new proposal has been readied with more and more safeguards.
One of the key safeguards suggested is to allow foreign investment only through the inter-ministerial Foreign Investment Promotion Board route. With the Home Ministry being a part of the FIPB, any proposal seen as against India's security interests will be blocked, the source said.
Different limits
A nod for the new proposal will help domestic carriers get equity support from foreign airlines. A highly placed Government official told Business Line: “It is expected that foreign airlines may be allowed to pick up equity of up to 49 per cent in domestic carriers.”
Currently, the foreign direct investment limit in scheduled domestic passenger airlines is 49 per cent and 74 per cent in non-schedule domestic passenger airlines. But the condition is: “No foreign airlines would be allowed to participate directly or indirectly in the equity of an air transport undertaking engaged in operating scheduled and non-scheduled air transport services, except cargo airlines.”
Funding problems
Although the proposal to liberalise the FDI norms was being discussed last year, it could not be taken forward, for many reasons. Earlier, the issue was whether to allow 26 per cent or 49 per cent foreign investment in the domestic airline sector.
A senior Civil Aviation Ministry official also said that, contrary to popular belief, a number of domestic airlines are seeking an early decision on this proposal. At the same time, the chief executive officers of various global airlines have been visiting the Ministry, seeking details of the proposal. All the three listed domestic airlines have posted higher losses for fiscal 2011-12. The big problem is that banks are hesitant to give money to airlines. So, the hope lies in foreign funding.

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