<div><strong>CH Unnikrishnan</strong></div><div> </div><div>Government move to ease foreign direct investment (FDI) norms in certain segments in the civil aviation sector, including general aviation charter operations and ground handling services, is a welcome move. Lifting the limit of FDI in these segments from the current 74 per cent to 100 per cent will bring a positive structural push in the India's civil aviation market, resolving one of the key challenges that the industry faces currently, which is the weak infrastructure and supporting services. </div><div> </div><div>The new foreign investment policy will bring large foreign companies, which have the required expertise and capabilities in this supporting segment, to set up their operations in the country in a big way.</div><div> </div><div>Being choosy on the segments for allowing increased foreign investment cap is important in India. </div><div> </div><div>A discussion paper prepared by Confederation of Indian Industries (CII) on FDI in airlines recently had highlighted that the key challenge for India's civil aviation sector currently is not 'more airlines', but more infrastructure.</div><div> </div><div>This industry discussion paper had stated with ultimate clarity that; “Additional airlines and foreign owned carriers will certainly mean more aircraft and more congestion.” Therefore, the current move to relax FDI norms in selected areas is a decision in the right direction.</div><div> </div><div>Till now, these sectors were allowed up to 49 per cent FDI under the automatic route and above this limit and up to 74 per cent were allowed under the government approval route, although 100 per cent FDI by non-resident Indians were already allowed in these sectors.</div><div> </div><div>The government decision to allow 49 per cent FDI in regional air transport services with yesterday’s decision is also positive step as it will give a much needed push to the government's earlier proposal in the draft civil aviation policy to increase regional connectivity.</div><div> </div><div>While the draft civil aviation policy released by the ministry civil aviation last month has mentioned a likely increase of FDI in the scheduled airline segment, industry experts are quite apprehensive about this plan as it will suddenly see change in majority ownership of several airlines currently registered in India. It will also see many foreign operators entering the country all of a sudden creating more operational challenges including safety and infrastructure.</div><div> </div><div>India should now be little more cautious about raising foreign investment limits in schedules airlines. As industry analysts have already alerted the airline industry has remained an exception globally to the process of economic liberalization. While, the sector remains subject to several restrictions globally in terms of both operations and of ownership and control.</div><div> </div><div>Most of the countries, including the US, Singapore and China, currently impose restrictions in this sector, mainly in terms of protecting the interests of the country as such and the local players. At present, a good majority of the countries have imposed a 49 per cent ownership limit in the airline industry. This is true for both developed and developing economies.</div><div> </div><div>The airline industry in India is currently passing through one of its most competitive phases. Even though the sector has of late shown a significant revival in terms of financial performance and investor confidence, one should not forget that there is already tight competition exist in the market. A positive turnaround in the sector, after long years of crisis, may get reverted to worse again if the current balance is lost with an increased FDI in the scheduled airline segment. The aggressive route expansion plans of the Indian carriers, both old and new entrants, have already created excess supply, leading to congestion on the ground and the skies. So, a selected approach that could be well augmented to push the infrastructure including the airport, ground handling and maintenance and repair, is the right way to go. </div>
