Foreign funds in civil aviation

Devsagar Singh

At a time when domestic airlines are becoming unhelpful in pushing forward the Government’s regional connectivity scheme (RCS), the NDA regime has found a way that is bound to create tension among the Indian carriers. The government is considering allowing operational and management control to non-airline foreign entities after they put in 100 percent FDI in a domestic airline.

According to existing norms, non-airline foreign entities/ companies can put in 100 per cent FDI in an airline business in India, but the management and operational control would have to remain in Indian hands. The Government has discovered that there is a serious anomaly in this policy. The moment a foreign investor buys 51 per cent or controlling stake in a domestic airline, the scheduled air operator permit gets withdrawn, as per the policy now.

This anomaly, the Government has found, is seriously discouraging foreign operators in putting their money in the sector which is growing by more than 20 per cent annually. When the policy allows 100 per cent foreign direct investment in the sector, how can they be restricted in running and managing the company?

It is learnt that discussions have started within the relevant ministries of civil aviation, industry and commerce and a final view is expected to emerge shortly. It is clear that once the foreign entities get permission to manage the airlines after buying the controlling stake, there may be a rush for 100 FDI in the sector. As a result, more domestic airline companies may be formed to the advantage of the travelling public. Indeed, there will be a shake up in the industry.

Sensing trouble, some existing domestic airline companies have raised alarm. At least two airlines—Indigo and Spicejet—are believed to have expressed concern in the name of “security” if foreign players are given free hand in running airline business. They fear loss of business if more players come in. The competition will be intense once foreign players are given free hand.

But why are the domestic players afraid of foreign management? Because they will bring better and competitive management practices. There may be a fare war. Ultimately, it will benefit the people. The domestic flying industry is no more nascent. The open sky policy has been there since the nineties. The domestic players got enough time to fortify themselves.

Indeed, India’s domestic aviation players are themselves to blame. When the Government put in a policy for the development of regional airlines under its RCS policy, the domestic airlines were lukewarm in response. Subsequently, they tried putting spokes by resisting a small cess for development of regional airports. They forced the Government to look for alternative avenues of funding. On re-look, the Government found out the “lacunae” in FDI policy. Now it is trying to rectify the lacunae for right reasons.

The security concerns raised by some domestic airlines is a ploy to deflect from the real issue. India needs foreign investment in the aviation sector. Investors are willing to come in but undue restrictions were preventing them from doing so. India has a fairly good regulatory mechanism in the aviation sector.

The government’s ambitious RCS scheme will get a fillip once the FDI anomaly is removed. To begin with, the Government may open unserved or underserved regional routes for the foreign players. There is such a huge market in India’s hinterland. If this happens, the existing domestic airlines will have less to worry. But slowly, the Government will have to permit other profitable routes to the foreign managed airlines to give them a level playing field.

What can be better than reducing the air ticket prices at affordable level for rural connectivity? The government has proposed a price of Rs 2500 for a flight destination of one hour. Once the RCS scheme becomes operational, it will result in a flurry of economic activities in rural hinterland, so far neglected on account of lack of faster connectivity.

Imagine more than 200 regional airports/ airfields becoming active. This will energise hundreds of tier II and III towns and cities across the country. It will create jobs and business opportunities for the rural youth in areas like tourism, exports etc.

Security concerns are a bogey often raised by vested interests. The world has moved on. So has India. Let there be fair competition giving them a level playing field. The litmus test is that the people must be benefitted. (IPA)  

Tuesday, 10 January, 2017