How a comma in India’s FDI policy let AirAsia fly
The interpretation of a ‘comma’ in India’s foreign direct investment (FDI) policy may have helped AirAsia get a flying licence to start operations in India in a joint venture with Tata Sons Ltd.
The criminal case registered by the Central Bureau of Investigation (CBI) against AirAsia Group’s CEO and others indicates the involvement of United Progressive Alliance government in clearing the investment proposal by AirAsia to start operations in India.
AirAsia (India) Ltd, a joint venture between Tata Sons Ltd (49%) and Malaysia’s AirAsia Bhd (49%), started operations in June 2014.
On Tuesday, CBI raided the offices of AirAsia India and filed a complaint against Tony Fernandes, the CEO of the Malaysian parent, for allegedly lobbying the government for overseas flight permits and violating rules.
The FIR also said that unnamed officials from the aviation ministry and Foreign Investment Promotion Board (FIPB) entered into a criminal conspiracy with top AirAsia executives.
Arvind Mayaram, then finance secretary heading FIPB, declined to comment on the FIR. However, Mayaram justified the clearance given to AirAsia and said FIPB had followed due process.
The operative part of the consolidated FDI policy that FIPB relied on to grant clearance to AirAsia reads as follows: “Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital.”
While the policy may lead one to believe that FDI up to 49% is allowed only in “operating” Indian airlines, FIPB concluded that the policy holds for greenfield projects as well, thanks to the comma between “Indian companies” and “operating”.
According to Mayaram, the sentence means “Indian company which would operate”. “Had there been no comma, it would have meant it is an already operating company. By putting a comma, it makes a difference, as it becomes present continuous. So, AirAsia could invest in an Indian company,” he reasoned.
On whether the introduction of the word “operating” in the FDI policy was a mistake, Mayaram said it was just “badly drafted”. “The intention was very clear and it was approved by the cabinet later. The FDI policy was also approved by the cabinet and they accepted the interpretation of the FIPB to be correct,” he added.
Mayaram said it was a normal procedure for companies in sectors where FDI was allowed under government approval route to first apply for FIPB approval and then seek a licence from the authorized regulator or ministry.
“The Tatas and AirAsia had applied to form a joint venture company in which AirAsia would have 49% shareholding. Most greenfield investments in India are done like this. First you give the approval, then they form a company and then they go and ask for a licence. When it’s a brownfield investment, an approval is given for investment in an existing company. FIPB gave similar clearance to Vistara also when they did not have a licence or a company,” he said.
Regarding the alleged violations against AirAsia, Mayaram said FIPB only approved allowing 49% FDI in an airline. “Once the FIPB gave its approval, they had to go to the civil aviation ministry for the licence. It was for the ministry of civil aviation to see that they fulfilled all the conditions of the policy because the aviation policy was enunciated by the civil aviation ministry. Before AirAsia was given the licence to operate, civil aviation would have examined the proposal. But FIPB had nothing to do with that. Our clearance was for investment in an airline in India. This query should be made to the civil aviation ministry,” he added.