The Hindu Business Line : Policy clouds

Competition among private carriers has seen a big surge in the number of air passengers, who will be even better served if foreign airlines come in.

It has been one of the long-standing oddities in the Government’s policy of liberalisation and attracting foreign direct investment during the past decade: we welcome FDI in the civil aviation sector, but there must be “no direct or indirect participation by foreign airlines”. Eleven years ago, the government of the day introduced this quirk in the policy on foreign investment and put paid to the aspirations of the Tata group and Singapore Airlines to sta rt a domestic airline. But why was such a patently absurd rule retained even as the government on Wednesday served another dose of liberalisation, raising the limits of foreign direct investment in cargo airlines and ground handling services from 49 per cent to 74 per cent and in maintenance, repair and overhaul facilities to 100 per cent?

The logic for keeping out the foreign airlines, even a decade ago, was clearly at variance with what the same government reasoned when it drew up guidelines for foreign direct investment in the telecom sector: it put in a pre-condition that the foreign investor should have a credible track record of managing a large telephone network. To disqualify a foreign investor only because the firm has the expertise of running an airline was baffling then; it is more so now that such a measure is being persisted with by a government which claimed three years ago that “the adhocism and lack of transparency that characterised civil aviation policy in the past has been replaced by a transparent, forward-looking policy framework that will encourage new investment in this sector.”

This is hardly to make the point that India needs foreign expertise to run its airlines. Indeed, home-grown entrepreneurs have demonstrated over the past decade that they have the mettle to run some of the world’s best domestic airlines, and it should surprise no one if they go out to acquire airlines in other parts of the world in the near future. Again, the civil aviation sector has surprised everyone with the pace of growth in recent years. The ending of the monopoly of public sector airlines a couple of decades ago, the entry of a number of private carriers and the intensity of competition among them have played a significant role in bringing fares down and in rousing people to fly in increasing numbers each year. The number of domestic passengers topped 70 million in 2006-07 — a 38 per cent rise over the previous year — against just 11 million ten years ago. That this era of cheap fares should largely sustain despite a violent rise in fuel prices is a product of this state of competition. All the airlines put together lost about $500 million in 2006-07; but that has not deterred them from ordering new aircraft, nor new entrants from rushing into this crowded field. If foreign airlines too join in, passengers will be the last to complain.

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