FDI cap change for scheduled airlines rejected by Indian authorities

The Ministry of Commerce and Industry’s proposal to lift the foreign direct investment (FDI) cap on India’s scheduled airlines from the current 49% to 74% has been rejected by authorities in the country.

A report from Business Standard reveals how India’s Ministry of Civil Aviation decided to throw out the suggestion due to controversy arising in the wake of foreign capital investment in both AirAsia and Jet-Etihad. The latter deal, worth Rs 2058-crore (€264,555,900), raised concerns there would not be effective control of the airline.

The move to allow for 49% FDI only came in last September, and a senior official at the ministry revealed to the publication how it is “still testing waters” in regards to foreign investment in the country’s airlines.

Current rules allow for 49% investment with the guarantee that the proper route to approval is taken and that the Indian firm involved retains the majority ownership and control of the organisation.

However, Civil Aviation Minister Ajit Singh said that the people in opposition of the deal were “long on politics and short on facts”. 

Had the proposal been accepted, India could have seen the management control of its airlines being transferred to foreign operations.

Foreign investors are, however, allowed up to 100% stakes in non-scheduled air service operators, which gives access to private aircraft.

Meanwhile, India’s Defence Minister AK Antony has rejected rises to FDI caps in the defence industry. At present foreign entities are allowed to invest 26%, but a committee led by Economic Affairs Secretary Arvind Mayaram suggested that this is raised to 49% across a number of sectors, including defence manufacturing.

Mr Antony has said that such a move would stifle domestic growth, particularly in research and design development. 

With offices across India, TMF Group helps companies looking to invest in the country while complying with the myriad local regulations regarding FDI. Find out more about doing business in India in our Discover section.​