SME Times News Bureau | 23 Feb, 2012
A proposal has been sent to the commerce ministry to permit foreign carriers invest in India's cash-strapped private airlines, Civil Aviation Minister Ajit Singh said Thursday.

"We have sent the proposal to them," Singh told reporters in New Delhi. However, he did not divulge any timeframe for the cabinet to examine the matter.

Foreign airlines are currently not allowed to directly invest in Indian carriers for security reasons. However, 49 percent FDI is allowed by non-airline players.

On Jan 17, a group of ministers (GoM) headed by Finance Minister Pranab Mukherjee agreed to draft a cabinet note proposing a 49 percent cap on FDI by foreign carriers in domestic airlines.

Before the Jan 17 decision, various government departments had proposed different investment caps - from 24 percent to 26 percent. The commerce ministry's Department of Industrial Policy and promotion (DIPP) had suggested a 26 percent cap.

"Private airlines in the country are in need of funds for operations and service upgrades to compete with global carriers," said the DIPP note.

Industry sources say the fresh infusion of investment would give a lifeline to the struggling sector, which bears the brunt of high jet fuel prices caused by state levies and high interest cost of their debt.

"The current financial position of Indian carriers is extremely challenging. FDI by global airlines in India would be a very welcome step," Amber Dubey, director (Aerospace) for consultancy firm KPMG told IANS.

"It will provide access to global funds, routes and management expertise," he added.

Three domestic airlines -- Kingfisher, Jet and SpiceJet - have reported heavy third quarter losses.

The FDI proposal was mooted by Vijay Mallya, chairman of the cash-strapped Kingfisher Airlines.

"I am an avid supporter of FDI. I don't see any reason why FDI from strategic partners like an airline should be banned or not permitted. Who would understand an airline better than another airline," Mallya had asked.