Ministries keen on FDI in the skies

a report by CNBC-TV18
19 June 2007

Under three governments, the civil aviation policy has made qualification a disqualification! Foreign airlines, since 1996, have been barred from picking up stake in domestic carriers.

The new civil aviation policy that was referred to the group of ministers, or GoM, last Friday has once again persisted in not allowing FDI by foreign airlines. But this time around, the finance ministry is questioning that wisdom.

The revenue department has a view that "even though FDI in domestic airlines has been restricted to 49 per cent, direct or indirect investment by foreign airlines, which is not permitted now, would be considered in due future. However, in the latest draft, this provision has been removed. We believe the intent of the government to consider this aspect in the future ought to be stated in the policy."

CNBC-TV18 learns the finance ministry has sought an explanation as to why there is a blanket ban on foreign airlines picking up a stake in domestic carriers. In fact, the department of revenue has told the aviation ministry that the policy does not reflect the government''s intention to eventually allow foreign carriers the right to pick up a stake in domestic airlines.
Expenditure department feels that "the rationale for blanket embargo on FDI by foreign airlines in domestic carriers is not clear and needs to be elaborated."

The department of expenditure has also said that the civil aviation ministry''s argument for not allowing foreign carriers is unclear. Sources say even the commerce and industry ministry is in favour of FDI by foreign airlines in domestic carriers.

Curiously, while the first draft of the policy had stated that the ban on FDI by foreign airlines would be reviewed, the clause was subsequently dropped in the note to the Cabinet last week. However, the civil aviation ministry hasn''t stated the reason behind the same.