The finance ministry has decided that investment by a person of Indian origin (PIO) in the aviation sector will continue to be treated as foreign direct investment (FDI) owing to security reasons. Unlike non-resident Indians (NRIs) who are allowed to invest 100% in aviation, the PIO can invest only up to 74%, subject to the FDI ceiling.
In a note, the department of economic affairs (infra and investment division), last month, clarified that NRIs are ?Indian citizens?, whereas, PIOs are not.
?In the civil aviation sector, especially for the air transport sector, this is material because of the Civil Aviation Requirement Rules 1937, which requires Indian citizen holding a majority,? the DEA said.
The official memorandum has come after the civil aviation ministry circulated a note seeking various ministries’ views on whether the PIOs can be treated on a par with NRIs for investment in aviation, particularly in areas like ground handling, etc. ?The issue was discussed at length. While some ministries did agree that PIOs could be treated like NRIs, most of them did not. The finance ministry was not in favour of the idea due to security issues,? an aviation ministry official said.
The aviation ministry had again sent a letter to the department of industrial policy and promotion (DIPP), which is the nodal foreign investment policy body, and finance ministry, seeking their views on investment by PIOs in ground handling. The finance ministry has, however, asked the DIPP to take a final call on the matter.
The issue of allowing seamless PIO investment first came up when a proposal for the same was mooted by aviation ministry in 2006 under the BJP-led NDA government. A Cabinet note to this effect was also floated for treating investments by PIOs on a par with those made by NRIs. However, the proposal met with severe resistance from all government circles leading to its rejection.
Bringing PIOs on a par with NRIs would have at that point in time enabled Neera Radia’s Magic Air to obtain regulatory clearances. The application of Radia, a PIO holding 60 % in Magic Air, for starting the airline had been on hold as the government was not clear about the status of PIO investments in domestic aviation.