Foreign direct investment not an overnight solution

After years of debating whether to permit foreign direct investment (FDI) in India’s aviation sector, the United Progressive Alliance-led Congress government last month announced the long awaited policy in favour of foreign airlines amid much criticism not only from the opposition Bhartiya Janata Party but also from its own ally.

Previously, foreign investors (other than foreign airlines) were cumulatively permitted to hold up to 49% of the paid-up share capital of an Indian airline company. The new policy permits foreign airlines to invest in private Indian airline companies operating scheduled and non-scheduled air transport services up to the same 49% limit. This, however, is under the “approval” (not the “automatic”) route and subject to security clearance before deployment of foreign nationals likely to be associated with the prescribed air transport services.

With the wholly owned government carrier (Air India) and almost all scheduled operators showing massive accumulated losses running into billions of rupees, the new policy has been widely welcomed as a way to infuse much needed equity into the cash-strapped airlines, enabling them to survive.

Nimish Vakil is a partner at Tyabji Dayabhai.  The firm was established in 1872 and has over 25 years’ experience in handling all types of aviation transactions and litigation.