Despite the government raising the FDI limit in the Indian domestic airlines to 100 percent, the FDI limit for foreign airlines to invest in Indian carriers remains capped at 49 per cent.
Despite the government raising the FDI limit in the Indian domestic airlines to 100 percent, the FDI limit for foreign airlines to invest in Indian carriers remains capped at 49 per cent.
However, experts point out that a foreign airline can join hands with its sovereign fund or non-aviation foreign private investors and set up a “100 per cent foreign-owned airline in India”.
Even though non-aviation foreign investors can invest upto 100 per cent in Indian carriers, this transaction has to be cleared by the government as only 49 per cent FDI will be permitted through the “automatic route” while anything beyond it will need “government approval”.
This means any such proposal will be examined by the government on a case-by-case basis.
Nevertheless, the government’s FDI aviation announcement is being seen as an attempt to draw more foreign funds into the cash-strapped Indian aviation sector.
Top civil aviation ministry sources did not specify why the cap of 49 per cent FDI was not removed in the case of foreign airlines wanting to invest in Indian carriers.
However, it appears that the government is moving cautiously for strategic reasons since aviation is considered a sensitive sector and also perhaps to protect the Indian domestic airline industry from a complete and possibly takeover by foreign carriers.
In 2012, the UPA government had permitted 49 per cent FDI in domestic airlines by foreign carriers. The move paved the way for setting up of two new airlines —Vistara and AirAsia India — and investment by Abu Dhabi-based Etihad in Jet Airways.
According to aviation expert Amber Dubey, partner and head, aerospace and defence, KPMG in India, “Though equity holding of foreign airlines is still limited to 49 per cent, a foreign airline can join hands with its sovereign fund or private investors and set up a 100 per cent foreign owned airline in India. It will be free to use the bilateral quota from the Indian side. We hope the 49 per cent restriction on ownership by a foreign airline may also get abolished in due course... The opening of sector will help bring in cash, aircraft fleet and best practices. We may see its positive impact over the next 6-12 months.”
