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India keeps investment ban

India's Cabinet has voted to maintain a controversial ban on investment by foreign airlines in the country's aviation sector, but it is continuing to ease restrictive policies in other areas.

While maintaining the ban, the government has formally raised the ceiling on foreign investment by non-airline groups. It is also promising to consider a review of a committee's recommendation that privately owned airlines be allowed to operate international services to points outside south Asia.

Under revised investment rules, foreign concerns may now own up to 49% of domestic airlines, up from the previous 40% limit. "However, no direct or indirect equity participation by foreign airlines is allowed," says the Indian government.

"By raising the FDI [foreign direct investment] cap, the domestic scheduled and non-scheduled airlines will get more equity from foreign investors. This would increase their competitiveness." India's finance minister announced in July that the government intended to raise the ceiling on foreign investment in the country's civil aviation, saying there was an "urgent need for infusing huge amounts of capital".

Privately owned airlines had been lobbying for this, but most observers see little impact from the change given that the ban on investment by foreign airlines remains in place. Lobbying for this to be changed has repeatedly failed, no matter which government has been in power at the time.

The ban has been in place since 1997, when a controversial new civil aviation policy was introduced by the then-government. The country's largest privately owned airline, Jet Airways, was directly affected as at the time it was 40%-owned by Gulf Air and Kuwait Airways. The two Middle East carriers were ultimately forced to sell their shares to Jet's majority owner, Naresh Goyal.

The government is, meanwhile, considering whether to allow privately owned airlines like Jet and Air Sahara to operate international services to countries beyond the south Asian region. Air Sahara and Jet were given approval late last year to serve other countries in south Asia, such as Bangladesh, Nepal and Sri Lanka.

The approvals came after years of lobbying and both airlines went international in March with services to the Sri Lankan capital Colombo. They have since been seeking to operate to points in the Middle East and South-East Asia, and a government-appointed committee studying civil aviation reforms has now recommended that additional rights be granted to them.

The so-called Naresh Chandra Committee says in its report that it "sees no reason why the Indian civil aviation system cannot be among the best in Asia. While infrastructure indeed is a limiting factor, lack of capacity to and from India is yet another major constraint".

It adds: "In order to ameliorate this condition, the committee would like to urge the government to expedite liberalisation of air transport services, beginning with allowing domestic airlines to utilise the unused entitlements in the present air services agreements, especially with regard to all destinations with high traffic."

It is estimated that state-owned Air India and Indian Airlines use only 30% of the traffic rights available under air services agreements with other countries. Civil aviation minister Praful Patel says a new civil aviation policy based on the committee's report "will be formulated by the end of this year".

Indian carriers hope this new policy will further enhance their expansion ambitions. Air Sahara is the latest to announce extra services, with plans to open a hub in Hyderabad in February with connections to 13 destinations in India and at least two cities abroad. Long-haul services are also on its agenda, with possible destinations including Kuala Lumpur, London and Singapore.

NICHOLAS IONDES SINGAPORE

 

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