Good sense prevails: Govt decides against increasing FDI cap in aviation

The Manmohan Singh Government has taken several foolish decisions in its mad rush to get more foreign money into India but thankfully, it has refrained from an obvious one: for now, there is no raising of the FDI cap in Indian airlines. Had the meeting this evening, where the Prime Minister presided, decided to hike the current FDI limit from 49 percent to 74 percent in civil aviation, it would have necessitated several other policy changes in civil aviation sector. And some of these could have turned out to be painstaking.

It is interesting to see that the crucial meeting this evening found gumption to even tinker with the highly emotive issue of retail trade but left civil aviation untouched. Commerce Minister Anand Sharma said that now, any single brand retail proposal which envisages 49 percent FDI does not need FIPB approval and only those where FDI beyond 49 percent is envisaged will have to go through FIPB. The meeting this evening also took a rather contentious decision on hiking FDI limit in defence production.

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But when it comes to civil aviation, perhaps even the Prime Minister realises how his own flock has created a mess of gigantic proportions. We are referring to the two proposals by foreign airlines which have come in since the ban on foreign airlines investing in Indian carriers was lifted last September.

[caption id=“attachment_960755” align=“alignleft” width=“380”] There is definitely something to be said for open skies policy but perhaps, given the Jet-Etihad and AirAsia precedence, the FDI policy needs to be more detailed. Reuters[/caption]

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Enough procedural issues have been dogging the Malaysian airline AirAsia’s plan to set up a new airline in partnership with Tata Sons and Telestra Tradeplace. And the proposal by Etihad Airways to pick up 24 percent stake in India’s Jet Airways is stuck in myriad regulatory and legal tangles. So the PM is obviously now unwilling to widen this mess by once again tinkering with FDI limits in the civil aviation sector.

Besides, had the limit been increased to 74 percent, the Government would have also had to amend all existing bilateral flying pacts (with more than 100 countries) where it is a pre-condition that Indian airlines using these rights are majority owned by Indians. There is definitely something to be said for open skies policy but perhaps, given the Jet-Etihad and AirAsia precedence, the FDI policy needs to be more detailed and fill in a number of loopholes for providing confidence to foreign investors.

Earlier, Civil Aviation ministry had itself opposed any move to lower FDI cap in the sector, saying there were no requests from any airline for this move.

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Meanwhile, a senior official in the Ministry of Civil Aviation said today that the ministry was still working on redrafting a Cabinet Note, which seeks permission from the Cabinet on the amendment of bilateral flying rights between Indian and Abu Dhabi. This bilateral has offered to quadruple the seats for airlines of each country by 2015 and has become a bone of contention between the Prime Minister’s Office and Civil Aviation Minister Ajit Singh. It is also inextricably related to the equity deal between Jet and Etihad. This official said the note is still being drafted and was unlikely to come up for discussion at this week’s meeting of the Union Cabinet.