Ajit Singh clears air over the faux pas by commerce ministry

A ministry press note which suggested that sectoral cap was revised to allow foreign investment over 49%

Civil aviation minister Ajit Singh on Friday said the sectoral cap for foreign investment in domestic airlines remains unchanged at 49%. Singh cleared the air following confusion created by a commerce ministry press note which suggested that sectoral cap was revised to allow foreign investment over 49%.

Last Friday, the Centre revised rules allowing foreign airlines to invest in domestic airlines. A formal notification was issued on Thursday. The notification said that 49% cap will subsume FDI (foreign airlines)  and foreign institutional investment (FIIs) in the airlines.

However, on Friday the commerce ministry while responding to media queries on the issue said FDI and FII will not be subsumed.

The commerce ministry's clarification suggested that the foreign airlines could invest upto 49% in paid up capital of the airline irrespective of the existing or future foreign institutional investment.

Now the commerce ministry will again send a clarification over the clarification that created more confusion.

According to a senior Department of Industrial Policy and Promotion (DIPP) official said," We will be issuing a clarification on this. FDI and FII is subsumed within that 49%. FII alone can go upto 24%."

Singh asserted that the 49% cap remained intact. "It is going to be 49%. It is a cabinet decision. All we have done is to allow foreign airlines to invest in domestic airlines,'' he told Business Standard.

Singh said he was unaware of the commerce ministry's press note.

The government is also in process of revising permissible limit of FIIs in domestic airlines. Until now FIIs could hold upto 49% (since foreign airlines were disallowed). Now with the sector cap remaining same FIIs will be allowed to hold upto 24%.

With Indian aviation companies having FIIs even below 10%, it leaves a huge scope for airlines to invest. As on  June 2012,Jet Airways  has 7.12%, Spicejet 3.59% and Kingfisher merely 0.98%.