The Industry Ministry has recommended allowing foreign airlines to pick up stake in domestic carriers but with a cap of 26 per cent- a major move to liberalise the cash-strapped sector. In a draft Cabinet note,the Department of Industrial Policy and Promotion (DIPP) has proposed 26 per cent FDI in domestic carriers,highly-placed sources said. The nodal Civil Aviation Ministry could change its stance,they said. The Aviation Ministry has so far been opposing allowing foreign carriers to invest in their Indian counterparts on the grounds that it was not a practice in many major countries like the US. Maintaining that no foreign player will be willing to invest in an Indian entity with a 24 per cent equity cap-suggested by the Aviation Ministry- sources said such a low stake might not be an agreeable option as that would not give a right to block a special resolution in a company. Any equity holding greater than 25 per cent gives a right to block a special resolution. "The DIPP has circulated the draft Cabinet note for inter-ministerial consultation. The Civil Aviation Ministry is in favour of opening the sector for foreign players," they claimed. Such a move would help bring in capital and international practices,they added. "The Indian aviation industry is in a crisis and allowing foreign players into the sector would help in its recovery," PricewaterhouseCoopers Executive Director Akash Gupt said. However,a strong feeling exists among major airlines,like Jet Airways,that fledgling Indian carriers would be susceptible to hostile takeovers as they have been passing through a difficult financial period. But the proposal has seen open support only by Kingfisher promoter Vijay Mallya. Interestingly,the Federation of Indian Airlines,an umbrella body of Indian carriers,says "it is important that India seek reciprocal opening of the airline industry in other countries,before allowing open access of its market to foreign carriers". "In an environment where restrictive foreign ownership in the airline industry is the norm,this protects the foreign carriers from both targeting Indian carriers for acquisition; and also using bilateral air service rights to their advantage," FIA says in its discussion paper. Those opposing entry of foreign carriers feel that these airlines,with deep pockets,could play havoc with the domestic market. They could also artificially lower the price of air travel to kill domestic competition.
