Cabinet to take up FDI in aviation tomorrow

The cabinet would consider a proposal tomorrow to allow foreign airlines to acquire stakes in local carriers, taking forward with a much-delayed reform that could reenergise debt-ridden domestic carriers.

Current rules do not allow foreign airlines to buy stakes in domestic carriers, although foreign investors can hold a cumulative 49 per cent. In the event of the approval of the proposal, foreign airlines would be allowed to buy similar-sized shareholdings.

According to analysts the policy move was seen as being positive and markets had been waiting for some policy action on three fronts - diesel hike, FDI in aviation and retail. Indian carriers have $20 billion in debt and are estimated at having lost $2.5 billion in the fiscal year ending March the Centre for Asia Pacific Aviation, said.

Domestic carriers, notably Kingfisher Airlines, have been pushing for FDI in aviation which would provide much-needed funds to keep them afloat.

The proposal had not been taken up with earnestness yet due to lack of political consensus and analysts say the discussion set for tomorrow, signified a much awaited step forward, although there is no guarantee the measure would be approved.

Prime minister Manmohan Singh's government has taken much flak in recent months for failing to push for any significant reforms since the UPA-II was formed in 2009. The proposal could clear the decks for more politically challenging reforms such as FDI in retail and cut in fuel price subsidies.