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49% FDI cap for Air India to stay: Govt

Shishir Sinha New Delhi | Updated on October 12, 2021

Letter of intent issued for take over of Air India by the successful bidder

The Government has underlined Air India’s special dispensation in terms of foreign direct investment (FDI) policy that dictates a cap of 49 per cent on all foreign investments.

In private airlines, non-aviation players can have up to 100 per cent FDI, whereas there is a cap of 49 per cent for foreign airlines specifically. However, for Air India, the entire cap is 49 per cent and the government believes it should stay. “No such request is with us for Air India saying it is necessary to change. By nature of contract also, there is an equity lock-in period. There is no emergent need. We will cross that bridge when it comes,” Tuhin Kanta Pandey, Secretary in the Department of Investment and Public Asset Management (DIPAM) told BusinessLine.

Special condition continues

The government’s reiteration comes in the wake of Tata Sons’s wholly-owned subsidiary Talace Pvt Ltd winning the bid for Air India at ₹18,000 crore. The special condition for foreign investment in Air India says: “Foreign investment(s) in Air India Ltd, including that of foreign airline(s), shall not exceed 49 per cent either directly or indirectly except in case of those NRIs, who are Indian nationals, where foreign investment(s) is permitted up to 100 per cent under the automatic route.” Also, substantial ownership and effective control of Air India will continue to be vested in Indian nationals as stipulated in Aircraft Rules, 1937.

National carrier status

This condition was made keeping in mind Air India as a national carrier and a central public sector enterprise (CPSEs). Post-completion of the strategic sale, it will no longer be a CPSE and its national carrier status will need clarity.

The strategic disinvestment has three specific clauses. One, there will be equity lock-in for one year.

Two, the successful bidder will have to ensure business continuity for at least three years.

And three, no brand/logo can be sold within the first five years and, even after that, it can be sold to an Indian entity only.

Government officials admitted that though it is unlikely that any of the conditions will kick in, there is still a safeguard and it does not necessitate any change in FDI policy.

Letter of Intent issued

The government on Monday issued a letter of intent (LOI) to Talace for taking over Air India.

“LOI issued to the successful bidder in the strategic disinvestment transaction of AI,” Pandey tweeted.

Published on October 11, 2021

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