The Hindu : Front Page : FDI cap in domestic airlines raised to 49%

Online edition of India's National Newspaper
Thursday, Oct 21, 2004

Front Page

Front Page

FDI cap in domestic airlines raised to 49%

By Our Special Correspondent

NEW DELHI, OCT. 20. The Union Cabinet today decided to raise the limit for foreign direct investment (FDI) in domestic airlines from 40 to 49 per cent through the automatic route while continuing to bar foreign airlines from making any direct or indirect equity participation.

This is expected to meet a long-standing demand of airlines such as Jet Airways and Sahara, seeking a fresh infusion of funds to meet their capital requirements, especially for fleet acquisition.

The Union Finance Minister, P. Chidambaram, told reporters after the meeting that foreign investments in domestic airlines would no longer have to be cleared by the Foreign Investment Promotion Board (FIPB). Under the previous regime, 40 per cent foreign investment was allowed but with "prior government approval through FIPB." The hike in FDI cap had come along with easing of procedures as the investment would now be allowed through the automatic route.

The meeting also approved 100 per cent FDI in domestic airlines by non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) through the automatic route.

Till now, the investment had to be cleared by the FIPB. The existing condition of not allowing either direct or indirect equity participation by foreign airlines has, however, been retained.

More equity

By raising the FDI cap, the domestic scheduled and non-scheduled airlines would get more equity from foreign investors and this would increase their competitiveness, an official release said.

The FDI hike was part of the proposals made by Mr. Chidambaram in the 2004-05 budget.

The Government had then pointed to the urgent need for infusing huge amounts of capital in the sector.

The present form of the proposal has not had an adverse reaction from the Left parties largely because it will not have any impact on the public sector Indian Airlines.

Though the official statement does not make any distinction between public and private airlines, informed sources point out that government shareholding in the public sector companies remains dominant for the time being.

In case these companies are divested in future, the policy provisions relating to FDI will also apply to them.

Grant to clear dues

In another move to improve the financial position of the civil aviation sector, the Cabinet has decided to provide a one-time grant of Rs. 124 crores to Indian Airlines to clear the liabilities of Vayudoot Limited, which has now merged with IA. Mr. Chidambaram said the Civil Aviation Ministry's proposal for grant to the airlines to pay off the outstanding dues of Vayudoot has been approved by the Cabinet.

An official release said the one-time non-plan budgetary assistance of Rs. 138.33 crores to Indian Airlines would include clearance of Rs. 114.7 crores dues of Hindustan Aeronautics Limited, Rs. 7.88 crores dues of ONGC, Rs. 9 crores of oil companies, Rs. 4.4 crores of banks and Rs. 2.35 crore dues of others.

Printer friendly page
Send this article to Friends by E-Mail

Front Page

News Update

Stories in this Section

FDI cap in domestic airlines raised to 49%

Decision consistent with policy: Left

`People did not reject BJP'

Veerappan buried after wrangling

"It was our turn to deceive Veerappan"

Gay-theme novel bags Booker

Daunting task ahead of India

Naxals retreat