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Take-off time

The inter-ministerial committee’s decision to hike foreign direct investment to 49 per cent in the Indian aviation sector from 40 per cent and increase the scope for foreign airlines to participate in domestic airlines is a welcome development. The proposal of the committee comprising the ministries of finance, civil aviation and planning is now awaiting endorsement by the union cabinet. After the air taxi operators were allowed to convert into scheduled airlines in 1994, quite a few new carriers were launched in the Indian skies. Some of the early enthusiasts, though, later crashed out of business.
The civil aviation policy took a severe knock in 1996-97 when the then United Front government decided to ban equity holding by foreign airlines. As a result, Jet Airways had to unload its equity held by certain Gulf-based airlines. It was because of this sudden policy reversal that the Tatas had to drop their equity partner, Singapore Airlines, from its proposed domestic airline venture. But even after the Tatas submitted a revised proposal without any foreign equity, the government still continued to drag its feet over it. This, despite the fact that the NRIs and overseas corporate bodies remained eligible to hold 100 per cent foreign equity.

On second thoughts in February this year, the Group of Ministers’ panel suggested hiking foreign equity to 49 per cent. It also approved foreign airlines taking part in domestic aviation ventures. But this was rejected by the then civil aviation minister Sharad Yadav. A new modified proposal has now been advanced by an inter-ministerial committee. The policy reversal has come about after the government failed to get a response to its disinvestment plans and the induction of strategic partners in both Indian Airlines and Air-India. As part of Air-India disinvestment, the government had capped foreign airline equity holding at 26 per cent even though the strategic partner as a whole could hold 40 per cent. It remains to be seen if the government will now reverse the earlier cabinet decision which prohibited foreign carriers from holding equity in a domestic airline. While the government is right in holding back Air-India and Indian Airlines disinvestment till the climate improves, the need for putting in place a revised aviation policy remains critical if the sector hopes to take off.
Editorial from the Hindustan Times.