New FDI policy on civil aviation; NRIs permitted to acquire upto 100% in Air India

New Delhi: The Union Cabinet on Wednesday has approved to amend the existing FDI Policy to permit Foreign Investment in Air India by NRIs (who are Indian Nationals) up to to 100% under the automatic route. Currently, the FDI Policy allows 100% FDI in scheduled Air Transport Service/Domestic Scheduled Passenger Airline (automatic up to 49% and government route beyond 49%). However, for NRIs 100% FDI is permitted under automatic route in Scheduled Air Transport Service/Domestic Scheduled Passenger Airline.

Further, FDI is subject to the condition that Substantial Ownership & Effective Control (SOEC) shall be vested in Indian Nationals as per aircraft rules, 1937. However, for Air India, as per the present policy, foreign investment in Air India including that of foreign Airlines shall not exceed 49%, either directly or indirectly, subject to the condition that substantial ownership and effective control of Air India shall continue to be vested in Indian Nationals. Therefore, although 100% FDI is permitted under automatic route for NRIs in Scheduled Air Transport Service/Domestic Scheduled Passenger Airline, it is restricted to be only 49% in the case of Air India.

What changes with the new FDI policy

In light of the proposed strategic disinvestment of 100% of Air India Ltd. by the Government of India, Air India Ltd. will have no residual Government ownership and will be completely privately owned, it has been decided that foreign investment in Air India Ltd be brought on a level playing field with other scheduled airline operators. The amendment in FDI policy will permit foreign investment in Air India Ltd at par with other Scheduled Airline Operators i.e. up to 100% in Air India Ltd by those NRIs, who are Indian Nationals. The proposed changes in FDI Policy will enable foreign investment by NRIs into Air India Ltd. up to 100%, under the automatic route. Above amendment to the FDI Policy are meant to liberalise and simplify the FDI policy to provide ease of doing business in the country. Leading to largest FDI inflows and thereby contributing to the growth of investment, income and employment.

The Backdrop

FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country. The FDI policy is reviewed on an ongoing basis, with a view to attracting larger volumes of foreign investment inflows into the country. Government has put in place an investor-friendly policy on FDI, under which FDI up to 100% is permitted on the automatic route in most sectors/activities. FDI policy provisions have been progressively liberalized across various sectors in the recent past to make India an attractive investment destination.

Some of the sectors include Defence, Construction Development, Trading, Pharmaceuticals, Power Exchanges, Insurance, Pension, Other Financial Services, Asset reconstruction Companies, Broadcasting, Single Brand Retail Trading, Coal Mining, Digital Media etc. These reforms have contributed to India attracting record FDI inflows in the recent past. FDI inflows in India stood at the US $ 45.15 billion in 2014-15 and have consistently increased since then. FDI inflows increased to the US $ 55.56 billion in 2015-16, the US $ 60.22 billion in 2016-17, US $ 60.97 billion in 2017-18 and the country registered its highest ever FDI inflow of US $ 62.00 billion (provisional figure) during the last Financial Year 2018-19. Total FDI inflows in the last 191/2 years (April 2000- September 2019) are the US $ 642 billion while the total FDI inflows received in the last 51/2 years (April 2014- September 2019) are US $ 319 billion which amounts to nearly 50 % of total FDI inflow in last 191/2 years. Global FDI inflows have been facing headwinds for the last few years.

As per UNCTAD's World Investment Report 2019, Global Foreign Direct Investment (FDI) flows slid by 13% in 2018 to the US $1.3 trillion in the previous year, that is the third consecutive annual decline. Despite the dim global picture, India continues to remain a preferred and attractive destination for global FDI flows. However, it is felt that the country has the potential to attract far more Foreign Investment which can be achieved, inter-alia, by further liberalizing and simplifying the FDI policy regime.