The Indian Civil Aviation sector has seen a lot of growth since the early 2000s. The "Open Skies Policy" initiated by the Government of India ("GOI") led to a spurt of airlines which have since catered to the growing passenger traffic.
Unlike elsewhere in the world, the Indian civil aviation market is on an unprecedented rise with passenger traffic increasing every year at a healthy pace, almost 20% annual growth which makes India one of the fastest growing markets in the world. This growth has put a lot of pressure in the allied infrastructure including airports, ground handling, Maintenance Repair & Overhaul (MRO), etc.
The Government has also allowed for the privatization of the airport development sector in both Greenfield and Brownfield projects. This resulted in the establishment of new airports in Hyderabad & Bengaluru and the redevelopment of the airports in New Delhi and Mumbai.
The FDI policy in the civil aviation sector can be divided into the following 3 subheads:
- Air Transport Services
- Other Services under Civil Aviation Sector
As per the GOI's Consolidated FDI policy of 2016, FDI stipulations are as under:
- In Greenfield projects, 100% FDI is allowed through the automatic route.
- In Brownfield projects, 100% FDI is allowed. Out of this, proposals up to 74% FDI are allowed through the automatic route while FDI beyond 74% requires GOI approval.
Air Transport Services
- For scheduled air transport services and regional air transport services, FDI is allowed up to 100%. Out of this, up to 49% FDI is allowed through the automatic route whereas proposal for FDI beyond 49% require GOI approval. However, for NRI investors, up to 100% FDI is allowed through the automatic route.
- For non-scheduled air transport services, up to 100% FDI is allowed through the automatic route.
- For helicopter and seaplane services, up to 100% FDI is allowed through the automatic route.
Other Services under Civil Aviation Sector
- Up to 100% FDI through the automatic route in Ground Handling Services.
- Up to 100% FDI through the automatic route in MROs, flying training institutions and technical training institutions.
Further, some of the conditions attached to the investment in either of the above 3 heads are as under:
- Air Transport Services would include Domestic Scheduled Passenger Airlines; Non Scheduled Air Transport Services, helicopter and seaplane services.
- Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services, as per the limits and entry routes mentioned above.
- Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. Such investment would be subject to some conditions, like (i) it would be made under GOI approval route, (ii) the 49% limit will subsume FDI and FII/FPI investment, (iii) the investments so made would need to comply with relevant SEBI regulations, as well as other applicable rules and regulations, (iv) the Scheduled Operator's Permit can be granted only to a company if it has registered its place of business in India; Chairman and at least 2/3rd of the Directors are Indian citizens and substantial ownership and control vests in Indian nationals, etc.
Benefits of the FDI Policy
- The primary benefit of this FDI policy is that airport development has now been opened to further investment. As we have seen from the examples of Delhi, Hyderabad, Mumbai, Bengaluru and Kochi, privatization has certainly resulted in improved service standards as these airports have only served to enhance passenger experience. These airports have been consistently rated as the best in the world. Increasing private involvement in the form of FDI will only improve the quality standards of Indian airports.
- The Indian aviation market is witnessing a period of boom wherein passenger traffic is increasing at a healthy rate. Tier II & III cities are also witnessing increasing frequencies and passenger traffic. Hence, this offers an attractive investment opportunity to any foreign investor since the passenger numbers are very healthy and hence the returns on investment will be very positive.
- Allowing for FDI in the scheduled airline segment is also an attractive investment opportunity since the passenger traffic is growing at a healthy pace. FDI has already benefitted carriers like Jet Airways, Air Asia India & Vistara.
- Ground Handling and MRO services are an unchartered territory since majority of the Indian airlines use MRO services of Sri Lanka, Singapore, UAE for the maintenance of their aircraft. India suffers due to the high taxation structure. The MRO industry is estimated to be worth Rs. 50 billion and hence offers another mode of foreign investment. Ground Handling is also dominated by foreign companies majorly. Hence, Ground Handling can also be a major avenue for FDI.
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