The only consolation the world's air transport industry can take from New Delhi's decision to bar foreign carriers from investing in India's airlines is that the country finally has a firm policy in place. The problem is that the imminent collapse of the government could soon open up the whole debate again.

The decision in early April by the cabinet committee on economic affairs to ban foreign carriers from equity stakes mirrors the position of civil aviation minister C M Ibrahim, but runs counter to the wishes of both the finance and industry ministries. The finance minister, in particular, has argued that any reversal of policy would send the wrong signal to investors abroad at a time when the country is looking for foreign investment of US $10 billion annually.

The block on foreign carrier participation not only spells the end for the proposed Tata-Singapore Airlines joint venture but also for three other airline projects, which included foreign equity. Moreover, it also penalises India's most successful private airline Jet Airways, in which Gulf Air and Kuwait Airways each hold 20 per cent stakes. The carrier has been given six months to conform with the ruling. 'Jet will abide by the norms,' says Jet Airways chairman Naresh Goyal, but he refuses to be drawn further on the issue.

Indeed, Goyal is wise to keep his counsel as the policy itself appears as ephemeral as prime minister Deve Gowda's United Front government. The government started life as a 14-party patchwork coalition. But following the withdrawal of support of one of its largest constituents, the Congress Party, in early April, Gowda now heads up a minority government which looked set to suffer a vote of no confidence at presstime. Local analysts confirm that the enforcement of the foreign airline equity ban depends on the survival of the coalition, but go on to emphasise that there is no guarantee a new government would overturn it.

But the industry ministry is certainly intent on trying to get the ban overturned if the government changes. One official argues that in light of the broad consensus in favour of opening up most sectors of the economy to foreign equity and competition it is illogical to exclude domestic air transport. 'There is a need to look at the policy again,' he says, adding the decision was made after intense lobbying from 'certain vested interests who did not want quality competition' - a veiled reference to state-run Indian Airlines.

Indeed, the logic of the ruling is questionable as Ibrahim has confirmed that foreign airport authorities can take up to a 40 per cent stake in domestic airlines. He insists that 'cash-rich' foreign airlines would put domestic carriers out of business. But some of the world's airport authorities are in much better financial health than their airline counterparts.

Source: Airline Business