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House panel says no need to cap FDI in airlines

Noting that access to funds is a critical issue,it said the cap limited the growth of the sector.

Written by ENS Economic Bureau | New Delhi | Published: April 28, 2012 1:04:20 am

A parliamentary panel has thrown its weight behind the government’s proposal allowing foreign airlines to pick up 49 per cent equity in local airlines and also recommended doing away with the existing 49 per cent ceiling for foreign investors in these airlines.

In a report submitted to the Parliament on Friday,the Committee on Estimates has said,“The Committee do not see any valid reasons for maintaining a cap on the FDI in domestic scheduled passenger airlines sector to 49 per cent and 100 per cent by a Non-Resident Indian.” Noting that access to funds is a critical issue,it said the cap limited the growth of the sector.

“The benefits of opening up the passenger airlines sector for investment by foreign airline companies are manifold. Apart from addressing the shortage of funds,this would help raise the level of services for the consumers and promote healthy competition,” said the report of the panel chaired by Francisco Sardinha,a Congress MP. The government is evaluating a proposal to allow foreign carriers to pick up 49 per cent in domestic carriers,as the cash-strapped airline industry’s losses are likely to surpass Rs 10,000 crore for 2011-12. Kingfisher Airlines has been scouting for potential investors and is reportedly in talks with a couple of foreign airlines,but has been delayed. However,the panel noted that FDI alone would not be able to tide over the current financial distress faced by the airline industry. It said that the government must take measures to ensure . It also backed the recent government decision to do away with the Right of First Refusal enjoyed by Air India which allowed it the first right over any foreign route. Only if it refused to operate that particular foreign sector,it was opened for the remaining airlines.

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