FOR­EIGN DI­RECT IN­VEST­MENT IN AVI­A­TION

While the ex­ist­ing In­dian car­ri­ers, par­tic­u­larly the state-owned Air In­dia may find the go­ing tough in fu­ture, the trav­el­ling pub­lic can look for­ward to good times ahead!

SP's Airbuz - - Front Page - — By B.K Pandey

CLOSE ON THE HEELS of the re­lease of the Na­tional Civil Avi­a­tion Pol­icy on June 15, 2016, has come an­other piece of news from the gov­ern­ment that would cer­tainly be ben­e­fi­cial for the In­dian civil avi­a­tion in­dus­try. The NDA Gov­ern­ment has pro­mul­gated a num­ber of ma­jor changes in pol­icy gov­ern­ing for­eign di­rect in­vest­ment (FDI) in the civil avi­a­tion sec­tor. This is the sec­ond ma­jor at­tempt at re­forms in this sec­tor af­ter the changes an­nounced in Novem­ber 2015.

The pro­vi­sions in the FDI pol­icy an­nounced this time, are aimed at fur­ther lib­er­al­is­ing the civil avi­a­tion sec­tor as well as sim­pli­fy­ing the norms with a view to pro­mot­ing ease of do­ing busi­ness, en­cour­ag­ing greater cap­i­tal flow and mak­ing In­dia an at­trac­tive des­ti­na­tion for for­eign in­vestors.

The pol­icy has a dis­tinct fo­cus on the de­vel­op­ment of in­fra­struc­ture for civil avi­a­tion. The limit of FDI in brown­field projects that was set at 74 per cent un­der the au­to­matic route has now been en­hanced to 100 per cent. This has brought it on par with the pro­vi­sions for FDI in green­field projects. This will hope­fully fa­cil­i­tate speedy mod­erni­sa­tion of the ex­ist­ing air­ports in­clud­ing those in dis­use, to ease the pres­sure on the ex­ist­ing air­ports as well as to ex­pand re­gional con­nec­tiv­ity. As for in­vest­ment in the In­dian air­line in­dus­try, FDI up to 49 per cent that un­til now was autho­rised un­der the au­to­matic route in Sched­uled Air Trans­port Ser­vice/Do­mes­tic Sched­uled Pas­sen­ger Air­line and Re­gional Air Trans­port Ser­vice has now been raised to 100 per cent. How­ever, FDI above 49 per cent is per­mit­ted for only non-air­line for­eign in­vestors with per­mis­sion from the gov­ern­ment. Non-res­i­dent In­di­ans how­ever, can in­vest in In­dian car­ri­ers up to 100 per cent with­out the need for gov­ern­ment ap­proval. The limit of 49 per cent will con­tinue to be ap­plied to the for­eign car­ri­ers who wish to in­vest in the In­dian air­line in­dus­try.

In­ci­den­tally, in 2012, the then gov­ern­ment in power had per­mit­ted FDI of 49 per cent by for­eign air­lines in do­mes­tic car­ri­ers. This de­ci­sion had paved the way for set­ting up of two new joint ven­ture air­lines namely Vis­tara and AirAsia In­dia as also in­vest­ment by Eti­had in Jet Air­ways. Sin­ga­pore Air­lines, a glob­ally renowned car­rier, holds 49 per cent stake in Vis­tara and AirAsia Ber­had, a lead­ing low-cost car­rier in Malaysia, holds 49 per cent share in AirAsia In­dia. In both these joint ven­ture air­lines, the house of Tatas is the ma­jor In­dian part­ner. While both these joint ven­ture air­lines are re­ported to be far­ing well, con­cerns have fre­quently been raised over ownership and con­trol of the joint ven­ture air­lines in In­dia in which for­eign air­lines have a sub­stan­tial stake­hold­ing. There has also been some para­noia about se­cu­rity im­pli­ca­tions of al­low­ing large for­eign hold­ings in air­lines based in In­dia. This con­cern is some­what mis­placed.

The fact of the mat­ter is that the In­dian air­line in­dus­try needs huge in­vest­ments which is not avail­able do­mes­ti­cally. Pol­icy on FDI adopted by the gov­ern­ment has led to in­crease in the level of in­vest­ment into In­dia from abroad. From a fig­ure of $36.04 bil­lion in 2013-14, FDI went up to $55.46 bil­lion in 2015-16, the high­est ever in­flow of funds from abroad in one fi­nan­cial year. The new pol­icy on FDI has the po­ten­tial to pro­vide the im­pe­tus the In­dian civil avi­a­tion in­dus­try needs to fully ex­ploit the po­ten­tial of growth the na­tion holds. With new car­ri­ers funded by the ma­jor in­ter­na­tional play­ers emerg­ing on the scene, the ex­ist­ing air­lines in In­dia will def­i­nitely be con­fronted with en­hanced level of com­pe­ti­tion. While the ex­ist­ing In­dian car­ri­ers, par­tic­u­larly the state-owned Air In­dia may find the go­ing tough in fu­ture, the trav­el­ling pub­lic can look for­ward to good times ahead!

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