After huge political opposition to its decision to raise diesel prices by 12% or Rs 5, the government will today discuss how to relax the guidelines for Foreign Direct Investment or FDI in aviation
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The Cabinet Committee on Economic Affairs, headed by the Prime Minister, will consider a proposal to allow foreign airlines to buy shareholdings in local carriers.
Currently, India allows foreign investors, excluding airlines, to hold a cumulative 49 percent in an Indian carrier. If the proposal is approved, foreign airlines would be allowed to buy similar-sized shareholdings.
A major opponent of the proposal is West Bengal Chief Minister Mamata Banerjee who has 16 Lok Sabha MPs and is the second-largest member of the ruling UPA coalition.
Although a 49 per cent stake gives investors minority shareholder control, they will get the right to block a special resolution.
The proposal to be considered today incorporates suggestions by the FDI proposal incorporates suggestions by Aviation and Home Ministry to ensure substantial ownership and control remains with Indian nationals.
So the Chairman and two-thirds of the Directors on the airline's board will need to be Indians.
All foreign citizens participating in the joint venture will need security clearance by the Home Ministry. Any equipment being imported for the airline will have to be vetted by the Aviation Ministry.
Relaxing FDI rules will help bring a much-needed cash flow to India's bleeding private airlines. The total FDI inflow in the aviation industry, the new proposal says, stands at a mere $433.75 million (Rs. 2,405.36 crore). FDI inflow into the aviation industry is a meager 0.25 per cent of the total FDI inflow.
Those in favour of more liberal guidelines say more sophisticated technology in ground handling and flight operations will follow. More competition is likely to result in more competitive fares and better product and services. Another potential benefit: better international connectivity.
Airlines like Vijay Mallya's cash-strapped Kingfisher have been pushing for FDI to boost the sector, but the airline industry is divided on this. More successful players like Indigo and Jet have expressed reservations in the past that allowing global players in will lead to cartelization and takeovers of Indian carriers.
(with inputs from agencies)
