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Liberalised FDI Policy Provides Opportunities to NRIs
Friday, February 15, 2008

The review of the foreign direct investment (FDI) policy by the union cabinet has some real good news for the tourism and the aviation sectors. The same will also lead to further liberalisation as NRI investments would be allowed up to 100 per cent on the automatic route. According to the revived policy, the civil aviation sector will allow FDI up to 74 per cent on the automatic route for non-scheduled airlines, charter airlines and cargo airlines with no direct or indirect participation by foreign airlines in non-scheduled airlines and charter airlines.

This liberalised FDI will also apply to ground handling services subject to sectoral regulations and security clearance. Explaining the same, Kiran Yadav, an aviation analyst and managing director, Aerobiz India says, "As far as non-scheduled airlines, charter airlines and cargo airlines are concerned, allowing 74 per cent FDI is an opportunity for the opening up of the market which hadn't taken off per se. With few players and a long gestation period for the capital invested in these markets, it takes people with big pockets and a mindset to sustain. Indians will be a bit hesitant to invest in these sectors, hence getting support of somebody willing to struggle."

The industry too, welcomed this initiative. Subhash Goyal, chairman, aviation and tourism committee, Indian Chamber of Commerce adds, "This will give a big boost to tourism as far-flung areas can now become accessible through charters and helicopters." When asked if India is ready with the basic infrastructure to encash on this new policy? Goyal said, "Necessity is the mother of invention. With the government approval, investors will come forward to invest in the infrastructure heavily." The sector is now poised to attract around US$ 50 to US$ 70-billion investments over the next few years.

However, FDI cap at 49 per cent on the automatic route and 100 per cent for NRIs, subject to no direct or indirect participation by foreign airlines and reclassifying it, as domestic scheduled passenger airline sector remains unaltered thereby deterring Sir Richard Branson and Tony Fernandes of Virgin Atlantic Airways and AirAsia respectively from starting their domestic airlines from India. Mentions Kapil Kaul, CEO, Indian Subcontinent and Middle East, CAPA (in its newsletter), "The revision in equity limit was very much required for the growth of India's aviation sector. However, India is the only country which differentiates between funding by foreign institutions and foreign airlines. This cannot be logically rationalised."



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