The Hindu Business Line : FDI in aviation: No flights of fancy, yet

Only time will tell if the hiking of the FDI cap in domestic aviation to 49 per cent will make India a more attractive destination for foreign investment.

WILL the October 20 decision of the Union Cabinet raising the Foreign Direct Investment cap in the domestic aviation sector to 49 per cent lead to major FDI inflows? While the jury is still out on this issue, many feel the move is unlikely to make any major difference.

Industry analysts point to the fact that foreign airlines not being allowed to pick up a stake either directly or indirectly in domestic airlines could deter many. However, official sources maintain that foreign airlines had been barred as allowing them to pick up a stake in the domestic airlines would give them indirect access to the Indian skies.

Despite some voices of dissent, the Minister of Civil Aviation, Mr Praful Patel, told Business Line shortly after the Cabinet meeting that the move hiking the FDI level was a pro-liberalisation measure.

Largely agreeing with the Minister, Mr Vijay Mallya, chairman of the UB Group, which is to shortly launch a low-cost airline UB Airlines, however, felt the move not to allow any direct or indirect management participation in the domestic airlines by the foreign investors could be an impediment.

Mr Mallya wondered why anyone should be interested in investing huge sums of money without a say the management; any investor would want to safeguard his investment by having some say in the management.

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 which would provide a level of comfort to the investor.

Terming the move as "largely symbolic," Capt G. R. Gopinath, Managing Director of the country's only low-cost airline, Air Deccan, said these "things mattered to foreigners".

He, however, felt that the move could see foreign investors putting in equity into airlines. "The move should help entrepreneurs like us get foreign investors to invest in our company," Mr Gopinath added.

Although some sections may not be too happy with the latest development, the Cabinet nod can be viewed as the culmination of a process which has been on going for some time now.

On July 8, while presenting the Budget, the Finance minister, Mr P. Chidambaram, had proposed a hike in the FDI cap in civil aviation from 40 per cent to 49 per cent.

The issue was also visited earlier. The previous National Democratic Alliance (NDA) government had examined such a proposal.

Similarly, the high-power Naresh Chandra Committee, set up to draw up a roadmap for the civil aviation sector, had proposed a hike in the FDI limit in domestic aviation. In the first part of its report, submitted last December, the Committee had suggested raising the FDI limit

However the latest move of the Government has seemingly not enthused most of the existing and established players in the domestic market. Official sources also confirmed that the issue of raising the FDI cap in the sector was never brought up in the various meetings between the Government and the key players.

Commenting on the latest move by the Government, a senior official of a leading domestic airline merely said: "Why should this move whet the appetite of anyone? Did you see many investors lining up when the cap was fixed at 40 per cent? Why should things be really different now?"

Whether the move will make any major difference in India being considered as a more attractive destination for FDI only time will tell.

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