Changes in the FDI Policy within the Aviation Sector

Recently, the Government of India has brought about much required changes pertaining to foreign direct investment (FDI) policies over civil

Recently, the Government of India has brought about much required changes pertaining to foreign direct investment (FDI) policies over civil aviation. This notification primarily permits all non-resident Indian nationals to stake a claim of 100 per cent ownership with Air India. The gazette notification comes amid the ongoing process of strategic disinvestment of Air India.

Due to the repercussions caused by the pandemic of Covid-19 recently, the government has for the third time, resorted to the extension of the deadline for bidding for Air India. This extension is the direct result of the delays and impediments brought about due to the fallout of the Covid 19 pandemic which has caused disruptions in economic activities almost everywhere. This entire process for bidding and divesting for Air India had initially begun on the 27th of January, 2020 and the rules being referred to for this process have been named the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2020, as per the official notification dated July 27, 2020. Further, these policy changes shall be implemented on the date of the publication of the same in the Official Gazette.

The changes which have been implemented with this new policy can be enumerated below:
  • All foreign investments in M/s Air India Limited, including the investments which pour in from any foreign airline shall not exceed 49 per cent in total, whether directly or indirectly. The only exception to this rule is for the NRIs, who are Indian Nationals, in which case, all foreign investments are permitted up to 100 per cent under the automatic route.
  • Any and all forms of substantial ownership and further the effective control of Air India Limited shall continue to be vested only with Indian Nationals as has been provided within the Aircraft Rules, 1937.
  • Furthermore, according to the current FDI Policy, 100 per cent FDI is permitted within all scheduled Air Transport Service and Domestic Scheduled Passenger Airlines. This includes the automatic route up to 49 per cent and all Government routes beyond 49 per cent.
  • It is important to however keep in mind that as far as NRIs are concerned, 100 per cent FDI is permitted only under the automatic route within Scheduled Air Transport Services and Domestic Scheduled Passenger Airline.
  • Furthermore, the government has permitted 100 per cent FDI under the automatic route with regards to helicopter services as well as seaplane services which further requires the approval of the Directorate General of Civil Aviation (DGCA).
  • Moreover, now all foreign airlines are allowed to invest in the capital of Indian companies whether they are operating a scheduled or a non-scheduled air transport service, up to the limit of 49 per cent of their paid-up capital, subject to certain conditions prescribed within the agreement for the same.
  • These conditions further make it clear that all such inflows have to be made under the government approval route only and the 49 per cent limit shall subsume FDI and FII or FPI investment only.
  • Furthermore, it is important to add that all such investments that are made will need to comply with the relevant regulations of the Securities and Exchange Board of India (SEBI).
  • Further, in the month of March, the Union Cabinet approved a proposal in order to permit foreign investments up to a limit of 100 per cent by those NRIs, who are Indian Nationals, in case of Air India only.
Conclusion

The above mentioned changes within FDI in the aviation sector including a very strategic disinvestment of 100% of M/s Air India Ltd. by the Government of India, M/s Air India Ltd. will now have no residual Government ownership and shall hence become an entirely privately owned and controlled entity. Thus this decision to bring all such foreign investment in M/s Air India Ltd must be brought on a level playing field with every other scheduled airline operator.  This amendment within the FDI policy shall provide and permit foreign investments in M/s Air India Ltd which shall be at par with other Scheduled Airline Operators which implies up to 100% in M/s Air India Ltd by all such NRIs, who are Indian Nationals.  These new changes in the FDI Policy shall also enable higher foreign investment by NRIs into M/s Air India Ltd. Up to 100%, under automatic route, as stated above. Further, the above amendment to the FDI Policy is clearly made with the motive to liberalise and simplify the FDI policy in order to provide ease of doing business in the country. Such a move shall only result in large FDI inflows and therefore lead to contributions in the growth of all kinds of investments along with increased levels of income and employment in the country.