Airlines can now borrow up to $1 bn from abroad

Handing a helpline to the cash-strapped civil aviation sector, finance minister Pranab Mukherjee today proposed to allow domestic airlines to borrow up to $1 billion in foreign loans for a period of one year.

 "To address the immediate financing concerns of the civil aviation sector, I propose to permit external commercial borrowing (ECB) for working capital requirement for the airline industry for a period of one year subject to a ceiling of $1 billion," Mukherjee said while presenting the union budget in the Lok Sabha.

ECB is a financial instrument used by the government to facilitate access to foreign funds by Indian corporations and public sector undertakings.

According to Mukherjee, the proposal for allowing foreign carriers to invest up to 49 per cent in domestic carriers is under active consideration of the cabinet.

Last month, civil aviation minister Ajit Singh had moved a cabinet note seeking 49 per cent foreign direct investment (FDI) by foreign carriers in domestic airlines.

Currently, the government allows FDI up to 49 per cent in Indian carriers by non-airline players but bans foreign airlines from directly investing in Indian airlines for security concerns.

According to International Air Transport Association (IATA) estimates, the Indian aviation sector would require $140 billion in the next 20 years to keep pace with the growing demand.

Other estimates have placed the current fund needs of the airline sector at $2.5 billion, with Air India alone accounting for $1.32 billion of the total.