Relaxed FDI norms will ensure increased competition in the “huge” domestic aviation sector but foreign airlines will never be allowed to fully own a domestic carrier, a top government official said today.
In a significant reform measure aimed at bolstering the country’s high growth potential civil aviation sector, the government has allowed foreign entities, except overseas carriers, to own up to 100 per cent stake in local airlines.
Besides, 100 per cent Foreign Direct Investment (FDI) has been permitted through the automatic route in brownfield airports.
“There will be more and more competition (in aviation sector). That is the signal that is going out,” Civil Aviation Secretary R N Choubey told PTI about the relaxed FDI norms and their long-term impact.
“With 22 per cent growth rate I think it is a huge market for anybody to come and invest,” he said.
India’s domestic traffic has been growing in double digit since last 21 months owing to a host of factors including low fuel prices, ease of doing business and capacity augmentation by the domestic carriers, among others.
Driven by low fares, domestic air travel witnessed an increase of around 21.63 per cent in number of passengers last month as compared to May 2015.
According to an analysis conducted by the ministry, air fares declined by 18.1 per cent in the February-April period of this year over the same period of 2015.
While 100 per cent FDI has been allowed in airlines, the limit for foreign carriers remains at 49 per cent.
Interestingly, the relaxation in FDI norms came less than a week after the much-awaited new civil aviation policy was unveiled, wherein the government scrapped the contentious 5/20 international flying norms for domestic airlines.
Under the 5/20 norm, only carriers that have been in operation for at least five years and having a fleet of minimum 20 planes were allowed to fly overseas.
The requirement of five years operational experience has now been done away with.
Currently, there are three local airlines where overseas carriers have significant stakes. Singapore Airlines owns 49 per cent stake in Vistara while Malaysia’s AirAsia Berhad has 49 per cent shareholding in AirAsia India. Gulf carrier Etihad Airways is a 24 per cent stakeholder in full-service airline Jet Airways.
Unveiling the reform measure, the government on Monday said that for NRIs, 100 per cent FDI would continue to be allowed under the automatic route.
“However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49 per cent of their paid-up capital and subject to the laid-down conditions in the existing policy,” it had said.
With regard to airports, the government has permitted 100 per cent FDI in brownfield projects through the automatic route.
Currently, 100 per cent FDI is allowed through the automatic route in greenfield airport projects while it is 74 per cent in brownfield ones.