Govt open to FDI in aviation,ministries spar over quantum

The Civil Aviation Ministry,in response to the views sought by the Department of Industrial Policy & Promotion (DIPP),has agreed to allow 24 per cent foreign direct investment (FDI) by foreign airlines,said a top government official.

“While there is a consensus on allowing foreign airlines to pick up stake,the range of FDI under consideration in the government is 24-29 per cent,” said a senior Civil Aviation Ministry official. The ministry has recommended 24 per cent,the source added. The DIPP,which has recommended 26 per cent stake,is likely to prepare a draft note on the matter and circulate it for inter ministerial consultations.

The move comes in the backdrop of financial difficulties faces by Vijay Mallya-owned Kingfisher Airlines. The airline has been strongly advocating it,even as another industry giant Jet Airways is opposed to it.

“The Civil Aviation Ministry has proposed 24 per cent investment by foreign airlines. The Cabinet is likely to take a call on the issue in a couple of weeks,” official sources said here.

On DIPP’s proposal of 26 per cent cap,they said,“Whatever decision the government takes,everyone will have to accept.”

Foreign Direct Investment (FDI) up to 49 per cent is now allowed in domestic airlines,but the policy currently bars foreign airlines from investing in them primarily on security grounds. A 26 per cent cap would allow a foreign investor to have voting rights in the board of an Indian carrier which is not allowed if the cap is 24 per cent.

While the DIPP feels that allowing foreign airlines to invest in domestic carriers would help them raise the much-needed equity,it does not find support among many Indian airlines which feel that fledgling carriers would be susceptible to hostile takeovers as they were passing through a difficult phase.

Besides Air India,domestic airlines like Kingfisher,Jet Airways and SpiceJet have all reported losses due to high cost of operation and face severe liquidity crunch.

Kingfisher Airlines is looking to raise working capital and wants the government to open up the domestic aviation sector for investment by foreign airlines,with Mallya saying only a foreign airline would be able to understand the problems of the sector.

But,opponents feel that a foreign carrier,with deep pockets,could play havoc with the domestic market. They could also artificially lower the price of air travel to kill domestic competition.

Even the Federation of Indian Airlines (FIA),which has Kingfisher as a major member,had opposed the proposal to allow foreign carriers to invest in domestic airlines. It cited instances of similar laws in force in several countries,including the US and Canada.