The Hindu Business Line : Empty gift

THREE MONTHS AFTER announcing its intentions in the Budget, the Government has raised the limit on foreign direct investment in the equity of private domestic airlines from 40 per cent to 49 per cent. It is only one of several measures that were required to free the private airline industry in the country from unnecessary shackles; not the one that was most sought after by the industry nor the most important. Yet, it was one reform on which the Government seemed to have won the approval of the Left parties, and considering the opposition it has met on raising the FDI limits in the telecom and insurance sectors, the Centre, grateful for the latitude it got, has gone to town with it. As a matter of fact, the enlarged limit does not change the landscape.

The extra nine percentage points that will now become available to foreign investors should not pose any threat to the ownership or management of the airlines, given that the majority will still be in Indian hands. The Government firmly believes that management control over the private domestic airlines must stay in Indian hands, which is why it continues to proscribe foreign carriers from taking any stake in them. Its reasoning is that the need to expand capacity will stretch the financial capabilities of the promoters and the easing of the foreign investment limits will provide them a measure of comfort. But the fact remains that none of the airlines had sought the relaxation, at least publicly. Two of the domestic airlines, Jet Airways and Air Sahara, do not carry any FDI at the moment; only Air Deccan does, but even this no-frills carrier was not unduly constrained by the erstwhile 40 per cent FDI cap. One must presume that the flexibility has been granted generously, ahead of the need.

It is not as if the private airlines did not have a more urgent wish list. They have been very keen to get the freedom to fly overseas. Some destinations, such as Colombo and Kathmandu, have been cleared for them, and accepted gratefully by passengers as the extra competition on the routes has forced fares down even in the context of rising fuel prices. Nod has come for Dhaka too, though flights are yet to start. The airlines await the signal to fly to other destinations, and it is easy to see why they are impatient about it. This winter, as was the case in the previous years, foreign airlines operating into India have the benefit of an Open Skies Policy that grants them the freedom to launch as many services to Indian cities as the traffic would warrant. Some 1,600 additional flights, to carry over 300,000 passengers, will be operated during the five-month period starting November 1. It is ironic that the flexibility the Centre provides foreign airlines, and many of them are now privately owned rather than by governments, is not being granted to private airlines in this country. Behind this curious illogic is the pressure to protect the turf of the two public sector carriers, Air India and Indian Airlines. Yet as a result of the Open Skies Policy, the national carriers will lose further market share any way, but only to foreign airlines.