New FDI norms in aviation may increase competition, reduce air fares: Experts

  • IANS, New Delhi
  • Updated: Jun 21, 2016 01:10 IST
India has announced radical changes in its foreign direct investment rules to attract overseas investment into its aviation and defense industries. (AP)

New FDI norms in aviation may increase competition, in turn, reduce air fares, experts said.

“The likely increase in competition will bring down prices and enhance air penetration in India -- both international and domestic,” 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,” he added.

Click here to read in detail about the changes in Aviation FDI

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

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

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

The new norms continue to permit non resident Indians (NRIs) to invest up to 100% 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% 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%. However, they can set up a 100% 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.

“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% has been removed,” Naidu said.

“Also remember that investment by foreign airlines is still capped at 49% - 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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