India mulls 26 per cent cap on FDI by foreign airlines

The government is likely to allow up to 26 per cent equity participation by foreign airlines in Indian carriers, in a bid to further liberalise the aviation sector in the country and help the industry out of it present troubles.

A cabinet note has put investment cap for foreign airlines in Indian carriers at 26 per cent, against the 24 per cent proposed initially by the civil aviation ministry.

The civil aviation ministry had, in an earlier proposal to the Department of Industrial Policy and Promotion (DIPP), pitched for a 24 per cent cap on FDI by foreign airlines as it would exclude them from exercising voting rights to control management.

At present, foreign direct investment of up to 49 per cent is allowed in the aviation sector, but foreign airlines are not allowed to invest in a domestic airline company.

The cabinet note suggests removal of the existing restrictions since any strategic investor would be interested in a minimum 26 per cent investment.
Reports said the cabinet note has been sent to all concerned ministries and departments, including the ministry of external affairs, civil aviation and the department of economic affairs, on 17 November, seeking comments from them within 15 days.

The policy shift comes in the backdrop of the Kingfisher Airlines facing a severe cash crunch and mounting debt.

The aviation sector as a whole has been passing through troubled times with national flag carrier Air India reporting accumulated debt of over Rs8,000 crore and private airlines too handicapped by rising operational costs, including fuel costs.

Air India too has been in the lookout for a strategic investor to bring in equity to save itself.