New FDI norms in aviation to spur competition: Experts

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New Delhi, June 20 (IANS) The government’s decision to further ease the foreign capital limit in the aviation sector has the potential to unleash more competition and, in turn, provide attractive fares to flyers, experts said on Monday.

“The likely increase in competition will bring down prices and enhance air penetration in India — both international and domestic. Indian carriers can now look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment,” said Amber Dubey, Partner and India head of Aerospace and Defence at global consultancy KPMG.

“The days of micro-management in aviation are gradually getting over. The government is now limiting itself to issues like aviation safety, security and consumer interests and leaving the rest to market forces.”

The announcement on major reforms in its foreign equity norms, notably in aviation, pharmaceuticals and food processing sectors was made in a statement issued by the Prime Minister’s Office.

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The new economic reforms are expected to create more jobs, improve infrastructure and make domestic investment climate more conducive for foreign investments.

These decisions were taken at a high-level meeting here on Monday, chaired by Prime Minister Narendra Modi.

Sector-wise, the new norm allows for 100 per cent FDI (Foreign Direct Investment) in brownfield airport projects under the automatic route.

Earlier, only FDI under automatic route for 100 per cent in greenfield and 74 per cent in brownfield airport projects were allowed.

“As per the present FDI policy, foreign investment up to 49 per cent is allowed under automatic route in scheduled air transport service/ domestic scheduled passenger airline and regional air transport service,” an official statement said.

“It has now been decided to raise this limit to 100 per cent, with FDI up to 49 per cent permitted under automatic route and FDI beyond 49 per cent through government approval.”

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The new norms continue to permit non resident Indians (NRIs) to invest up to 100 per cent FDI under automatic route.

“However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49 per cent of their paid up capital and subject to the laid down conditions in the existing policy,” the statement added.

The equity holding of foreign airlines has been restricted to 49 per cent. However, they can set up a 100 per cent foreign owned airline in India by way of a joint venture with India-based sovereign fund or private investors.

“The government plans to go for a massive improvement in India’s global and domestic connectivity, affordability and ease of doing business,” Dubey said.

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“The opening of FDI will help bring in much needed cash, aircraft fleet and best practices. We may see its positive impact over the next 6-12 months.”

Peeyush Naidu, Partner, Deloitte India, does not expects a sudden spurt in foreign investments into the airline sector.

“While the increase in FDI for aviation is welcome as it will allow flexibility, we are unlikely to see investors suddenly rushing to invest in airlines just because the cap of 49 per cent has been removed,” Naidu said.

“Also remember that investment by foreign airlines is still capped at 49 per cent – so it remains to be seen whether other investors such as PEs and the like would have the risk appetite to make such investments.”

This is the second major reform after the last radical changes announced in November 2015.



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