Cabinet clears 100% FDI in aviation under automatic route; discusses 49% foreign investment in Air India

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Updated: January 10, 2018 1:56 PM

The cabinet on Wednesday eased some of the foreign direct investment (FDI) norms for construction and aviation.

UP govt, airport, Jewar, Delhi, Express of InterestThe cabinet on Wednesday eased some of the foreign direct investment (FDI) norms for aviation and construction sectors.

The Union Cabinet on Wednesday announced a major easing of FDI norms for the aviation sector, allowing 100% foreign direct investment into Indian airline operators under the automatic route, even as the talks around selling a stake in the national carrier Air India continue to gather steam. Cabinet approved investment up to 49% under approval route in Air India. “Foreign airlines allowed to invest up to 49 percent under approval route in Air India,” the statement said. As per the policy, foreign airlines are allowed to invest under government approval route in Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 percent of their paid-up capital. However, the provision was not applicable to Air India, thereby implying that foreign airlines could not invest in Air India. “It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49 percent under approval route in Air India,” it added. This condition was relaxed subject to certain conditions. The statement said that foreign investment in Air India including that of foreign Airline (s) shall not exceed 49 percent either directly or indirectly and “substantial ownership and effective control of Air India shall continue to be vested in Indian National.” The cabinet also approved 100 percent FDI in construction sector under automatic route. The Union Cabinet reviewed the foreign direct investment (FDI) policy in certain sectors today. The Union Cabinet meeting was headed by Prime Minister Narendra Modi.

Earlier this week, a parliamentary panel on transport, tourism and culture recommended that the national carrier  Air Indian should be given at least five years to revive and write-off its debt. The Parliamentary Standing Committee on Transport, Tourism and Culture concluded that the government should review its decision to privatise or disinvest Air India and explore the possibility of “an alternative to disinvestment of our national carrier which is our national pride.” The draft report said, “Air India should be given a chance for at least five years to revive themselves”. The tenure of five years indicates the end of the turnaround plan and FRP period in 2022. It said the airline’s debt was “due to policy directions of the ministry of civil aviation. Air India may be permitted to function as a government PSU with less government control”. The committee also expressed apprehension that Air India’s strategic disinvestment “would result in job loss of many people” and asked the government to “make an assessment” of the job loss before deciding on stake sale.

While efforts have been made to revive the airline in the past, Air India has not reported a profit in at least a decade; in 2015-16 it posted an operating profit of Rs 105 crore and reduced its net loss to Rs 3,837 crore compared with Rs 5,859 crore in 2014-15. Retaining the airline in its fold is a much more expensive proposition for the government than transferring the ownership. The government would require infusing amounts much higher than the Rs 50,000 crore proposed under a revival plan for AI, which entails it to continue as a state-run entity. The Centre has already infused about Rs 30,000 crore in the airline over the past few years.

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