Ownership haze mars FDI in aviation

Earlier rule on reserving management control for Indians remains; lack of coordination among departments, say critics

There is ambiguity over the recent government circular to allow up to 100 per cent foreign direct investment (FDI) in airline companies.

Last week, the department of industrial policy & promotion (DIPP) notified the increase in FDI limit through Press Note Number 5. The note, however, says there is “no change in other conditions mentioned in the FDI policy for this (aviation) sector and the note thereto”. It means the earlier Substantial Ownership and Effective Control (SOEC) norms (saying these must be with Indians) haven't changed.

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This has puzzled sector experts, as allowing 100 per cent foreign ownership and retaining effective control and ownership with Indians are contradictory. Last month, the government changed the FDI norms to enhance the foreign investment cap in an airline from 49 per cent to 100 per cent. Foreign airlines’ investment is, however, still capped at 49 per cent; non-airline investors may hold up to 100 per cent.

After the announcement, Civil Aviation Ministry Secretary Rajiv Nayan Choubey had said the SOEC rule was being amended at the air operator permit level. Schedule XI aircraft rules explicitly state that the Air Operator Permit to operate a scheduled carrier will be granted only to a citizen of India or a company whose substantial ownership and effective control is vested in Indian nationals.

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Asked to explain, the aviation ministry and DIPP officials said the ambiguity wasn't their making. Choubey said, “FDI circular supercedes any other rule. So, if 100 per cent foreign control is the target, it is imperative that the SOEC rule is amended. DIPP should make it clear. We will take up the issue with them.”

However, a senior DIPP official said it was the aviation ministry which had to change its standing rules. DIPP Secretary Ramesh Abhishek did not respond to multiple calls and text messages on the issue.

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Amber Dubey, partner at global consultancy KPMG, said: “100 per cent FDI and substantial ownership and control with Indian nationals is baffling and has created needless confusion. This smacks of undue haste and lack of coordination between the Prime Minister’s Office, DIPP and the aviation ministry.”

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Lalit Bhasin, managing partner at legal advisors Bhasin & Co, said the aircraft rules would have to be amended to be in line with the new FDI norms.

UP IN THE AIR

• DIPP amends FDI norms to allow 100 per cent foreign ownership in Indian airlines
   
• Civil Aviation Secretary R N Choubey said  existing policy for grant of air operator permit  would be amended to bring it in line with FDI norms
   
• DIPP note indicates no change in ownership and effective control norms
   
• Experts say such contradictions create confusion for foreign investors