Government Explores Easing FDI Norms In Aviation To Attract Air India Bids
An Air India Ltd. aircraft prepares to land at Chhatrapati Shivaji International Airport in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)  

Government Explores Easing FDI Norms In Aviation To Attract Air India Bids

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The Department for Promotion of Industry and Internal Trade and the civil aviation ministry are looking at the possibility of relaxing foreign direct investment norms in aviation to attract bidders for Air India's sale, an official said.

The government is having a second go at Air India privatisation, as the airline is sitting on a debt pile of over Rs 58,000 crore, besides accumulated losses.

Bids for Air India’s sale are likely to be called in November.

At present, 100 precent FDI under the automatic route is allowed in ground handling and aircraft purchase, among other segments of the aviation sector.

"But in airline operation, there is an issue of substantial ownership and effective control. So there, we are talking to the civil aviation ministry to see whether they are interested in liberalising it," the official said.

"It is felt that if you allow 100 percent FDI, probably it will have a better effect on the Air India bidding prospects. The civil aviation ministry is also aware of that. We are taking it up with them also," the official added.

The matter of Air India’s privatisation, among others, is expected to figure in a meeting of an interministerial group on Tuesday.

The group would discuss the possibility of further simplifying and easing FDI norms to attract overseas investors. According to the official, the department is looking at relaxing norms in those sectors where currently 100 percent FDI is not permitted through the automatic route.

"We are looking at sectors where 100 percent automatic is not there. We are looking at all those sectors and are talking to all those departments, whether they want further liberalisation in that," the official cited above said.

The DPIIT is also consulting with some trade and investment bodies to understand their requirements. Based on the unanimity in the inter-ministerial consultation, the department will work out a proposal.

"Basic target is those sectors, where there is a government approval route and 100 percent FDI is not there," the official said.

Officials from different ministries, including defence, information and broadcasting, electronics and information technology, and finance, will attend the meeting.

Although FDI is allowed through automatic route in most of the sectors, certain areas such as defence, telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors.

Under the government route, the foreign investor has to take prior approval of the respective ministry or department. Through the automatic approval route, the investor has to inform only the Reserve Bank of India after an investment is made.

There are nine sectors where FDI is prohibited, including lottery business, gambling and betting, chit funds, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco. Recently, the government relaxed FDI norms in sectors like single-brand retail trading, contract manufacturing, and coal mining.

Finance Minister Nirmala Sitharaman had in her maiden budget speech in July 2019 proposed relaxation in FDI norms for certain sectors such as aviation, AVGC (Animation, Visual Effects, Gaming and Comics), insurance, and single-brand retail to attract more overseas investment.

Currently, a standard operating procedure is laid out by the DPIIT through which FDI proposals are processed within a fixed time period of 8-10 weeks. During the April-June period of the current fiscal, FDI into India increased by 28 percent to $16.33 billion.

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