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Panel moots 49% FDI in airlines

Last updated on: December 08, 2003 19:01 IST

In a major move to open up the aviation sector for private participation, a high-powered government-appointed committee has recommended 49 per cent foreign direct investment in domestic and international airlines and allowing private sector carriers to fly abroad.

While calling for expeditious privatisation of Delhi and Mumbai airports, the five-member committee, headed by former cabinet secretary Naresh Chandra, recommended that government should also focus on 'early privatisation of all airports' in the country.

The first part of the report, submitted to Civil Aviation Minister Rajiv Pratap Rudy on Monday, also asked the government to expedite the privatisation process of Indian Airlines and Air-India in two phases and divest Pawan Hans Helicopters Limited through offering of initial public offer.

It also mooted foreign investments of up to 100 per cent in the non-scheduled carriers like helicopter operations, Rudy told reporters in New Delhi.

It recommended liberalisation of the bilateral air traffic rights to allow private domestic carriers like Jet Airways and Air Sahara to fly abroad, besides reverse auction for private airlines to fly to uneconomic but socially important domestic routes.

Rudy said the ministry would examine the report and incorporate those recommendations accepted by it in the new civil aviation policy, which would be placed before the Union Cabinet for approval 'soon.'

The policy is likely to be finalised in the next two months.

The panel also sought creation of a non-lapsable Essential Air Services Fund, outside the Consolidated Fund of India, to provide explicit support to essential, but uneconomical services like operations to the North-East.

In order to make flying affordable, it suggested lowering of excise duty and sales tax on aviation turbine fuel

and abolition of import duty and sales tax on AVGAS. It recommended taxes like IATT, FTT and PSF be replaced by a single, lower ad valorem cess of 5 per cent of the airfare.

Another major recommendation was to create an Aviation Economic Regulatory Authority and bring under it the fuel supply infrastructure at all airports in order to check the potential of abuse of monopoly power in this area.

In a bid to provide a level-playing field between IA and the private domestic carriers, the panel also suggested removal of restriction on government and PSU employees' travel on private carriers.

On the foreign investment norms, it recommended that the existing requirements regarding fleet size and equity capital be removed so as to encourage entry and greater competition.

Paving the way for foreign equity participation in IA and A-I, it recommended that 'foreign equity investment norms pertaining to both domestic and international scheduled air transport services be further liberalised to allow up to 49 per cent foreign investment.'

"As regards investments by foreign airlines, investment up to 49 per cent may be allowed with the approval of Foreign Investment Promotion Board. In all other air services, that is non-scheduled services such as helicopter operations, foreign investment (including investment by foreign airlines) should be allowed up to 100 per cent."

To meet the 'dire need' of improving efficiency of A-I and IA and limit government 'interference,' the committee called for expediting the process of privatisation and transfer of management control to strategic private investors.

Recommending their expeditious privatisation, it said the government could consider private placement of shares of the two public sector carriers after independent valuation, with domestic financial institutions and foreign institutional investors.

"This consortium should be allowed to appoint a management team of their choice and exit at their volition."

Asked whether allowing private airlines to fly abroad should precede the privatisation of A-I and IA, Chandra said both processes could go hand in hand.

Giving a roadmap for the aviation sector, the committee sought liberalisation of the international air transport segment in two phases. In the first, private airlines in India should be allowed to provide international air transport services to and from India on the unutilised bilaterals.

In the next phase, government should 'seek more liberal arrangements under the bilaterals and enhance full access to wider market segments by joining a regional or a plurilateral group of countries with a similar agenda of liberalisation.'

Suggesting further liberalisation of chartered air operations to enhance tax revenues and boost retail travel trade, it mooted relaxation of restrictions pertaining to frequency and foreign ownership norms for chartered operators.

It recommended tourist charters be allowed to take Indian passport-holders on board and carry a mix of foreign and Indian passengers on domestic tourist circuits.

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