The civil aviation ministry has proposed that foreign airlines be allowed to pick up 49 per cent stake in domestic airlines. In a note to be sent to the cabinet for approval, the ministry has also recommended raising the foreign direct investment (FDI) cap to 49 per cent from the existing 40 per cent.
At present, equity participation by foreign airlines is not allowed in domestic airlines.
Top government officials told Business Standard that the note will be sent to the cabinet before January-end.
The note also elaborates on the final draft of the long-pending aviation policy.
Explaining the reason for the delay, the officials said the policy on foreign investment in airlines was dependent on disinvestment of government stake in Indian Airlines.
With the government deciding to defer the privatisation of the national carrier, the ministry can now announce its policy for the sector, they added.
In its draft aviation policy, the ministry had earlier proposed permitting foreign airlines to pick up 25 per cent in domestic airlines. Several ministries to which the note was circulated for comments, however, suggested further opening up of the sector to foreign airlines.
The development follows a reaction from the Planning Commission on the ministry's earlier proposal of easing the FDI cap applicable to the sector to 49 per cent from the present 40 per cent, including permission to foreign airlines to hold up to 25 per cent stake in domestic airlines, the officials said.
The proposal, if accepted will provide a fillip to India's largest private carrier, Jet Airways, which has drawn up plans for a private placement of a part of its equity, according to a company announcement.
At the time of its inception, Gulf Air and Kuwait Air jointly held a 40 per cent stake in Jet Airways.
The government had, however, amended its aviation policy subsequently, disallowing any FDI in domestic airlines, because of which the two international carriers had to sell their stake to Jet Airways chairman Naresh Goyal and exit the company.
The officials, however, clarified that the contents of the aviation policy even after it gets the Cabinet's approval would not effect the government's strategy for divestment of its stake in Air-India and Indian Airlines.
"As their owner, the government (Cabinet Committee on Disinvestment) can adopt a different stand when deciding on the sale of equity in the airlines," they said.
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