Relax aviation ownership, control rules to attract more FDI: Whitepaper

January 07 2020

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To attract greater foreign capital into the country's aviation sector, the Centre should consider to ease the ownership and control rules of the industry, a whitepaper on the steps required to prop-up the sector said.

The paper said the move to ease regulatory norms and enhance FDI limit will give access to "much-needed cheaper funds to the sector".

At present, the Substantial Ownership and Effective Control (SOEC) clause bars any foreign investor from taking complete control of an airline, run by a board that has two-third members as Indians.

Incidentally, in the last Budget speech in July 2019, Finance Minister Nirmala Sitharaman had said that the government proposed to hike the FDI limit in domestic air carriers from the current 49 per cent.

As of now, 100 per cent FDI is allowed under automatic route for MRO (maintenance, repair, overhaul), ground handling and aircraft purchase.

"This would provide much-needed cheaper funds to the sector, a large part of which is in need of an infusion of funds. Even the national carrier Air India is surviving on bail-outs by the government," the paper said.

Currently, the sector is in a grip of heavy debt burden and accumulating losses, despite the fact that passenger traffic has grown phenomenally over the last decade.

"The way out of this would be to encourage greater foreign investment into the sector by easing the FDI inflow norms in the sector, and help build up a strong aviation financing centre, dedicated for financing only to the aviation sector.

"This will not only ease the debt-ridden sector, but with it would come the best management practices and improved technologies which are being deployed worldwide," the paper said.

In terms of sub-sectors, the paper pointed out 'Air Cargo' as the hidden treasure of the industry.

As per the whitepaper, prospects of air cargo business in India are promising due to the rise of trade in sensitive perishable items. A number of sectors such as pharmaceuticals and e-commerce depend on this sub-sector.

"Dedicated cargo terminals, cargo processing facilities and associated facilities can be set up to international levels by framing a supportive policy which will attract private investment in keeping with the expected growth in cargo volume in the country," the paper said.

In addition, it called for fast paced infrastructure creation of airport capacity, ATCs, as well as training academies associated with the sector to meet the growing traffic demand.

"The PPP model has worked very well in many infrastructure sectors like airports, toll roads etc. There is no reason why it cannot be deployed in larger measure to all areas in this sector," the paper said.

"Development of associated infrastructure and approach roads, warehouses etc. are all prime candidates for deploying the PPP model in a large way. A fresh policy in this area would work well," it said.




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