Financial Daily from THE HINDU group of publications
Thursday, Oct 21, 2004
Industry & Economy - Foreign Direct Investment
Logistics - Airlines
Aviation FDI cap hiked to 49 pc Foreign airlines stay barred from holding stake
New Delhi , Oct. 20
IN a move aimed at showing India's keenness to attract greater foreign direct investment, the Union Cabinet, on Wednesday, hiked the FDI cap in domestic airlines to 49 per cent from the existing 40 per cent.
However, foreign airlines would not be a direct beneficiary of the decision since they would not be allowed to pick up a stake directly or indirectly.
The Cabinet had said earlier that non-resident Indians and overseas corporate bodies (OCBs) would be allowed to hold 100 per cent equity in domestic airlines through the automatic route. Earlier, this was allowed only through the Foreign Investment Promotion Board (FIPB) route.
The Finance Minister, Mr P. Chidambaram, had proposed a hike in the FDI caps in the aviation, telecom and the insurance sector in his Union Budget speech for 2004-05.
However, the proposal was mired in controversy with the Left parties expressing their opposition to tamper with the existing caps in the three sectors.
It now appears that after prolonged negotiations, the Left has somewhat softened its stance on the FDI cap in airlines while remaining firm in opposing hikes in telecom from 49 per cent to 74 per cent and in insurance from 26 per cent to 49 per cent.
Commenting on the Cabinet decision, the Minister for Civil Aviation, Mr Praful Patel, said that the decision was a "pro-liberalisation" move.
Won't make much of a difference: The latest Government move, however, had both the major existing players in the market and those waiting in the wings wondering if it was likely to make any major difference to the sector.
Describing the Cabinet's decision as a "positive development", the promoter of the soon-to-be-launched low cost airline, Kingfisher Airways, Mr Vijay Mallya, felt that the move not to allow any direct or indirect management participation in the airline by the proposed investor could be an impediment.
Mr Mallya added that while he was not in favour of allowing foreign airlines to operate in India, there was a need to find a "balance" between investments and some form of participation that would provide a level of comfort to the investor.
Welcoming the move, the Managing Director, Air Deccan, Capt. G.R. Gopinath, said that though the Government move was more "symbolic," these things mattered to foreigners. The move would send the right signal to investors who want to put in their monies in India, he added.
However, despite the concessions announced by the Government, the airline had no plans to make any changes in the amount that it was planning to off-load.
Meanwhile, a cross-section of existing airline personnel, when contacted, felt that the move was unlikely to make any major difference to the sector. "Even earlier, when the FDI cap was fixed at 40 per cent, how many investors did you see lining up? So, why should a small hike in FDI limit whet the appetite of the investor," a senior official of a key domestic airline said.
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