In a major move for the aviation sector, the government on Friday decided to allow foreign airlines to buy up to 49 per cent stake in local carriers. The foreign investment limit of 49 per cent in local airlines includes both foreign intuitional investments and foreign direct investment, according to a government document.
"The cabinet today approved the proposal of allowing foreign airlines to pick upto 49 per cent stakes in Indian carrier. Though FDI of upto 49 per cent, 75 per cent and 100 per cent was there in aviation sector, foreign airlines were not allowed," Civil Aviation Minister Ajit Singh told reporters after the meeting.
Ajit Singh said that the sector has been under financial stress and now banks will look at them favourably. Technical & management expertise would be available.
Reacting to the move, Gurudas Dasgupta of Trinamool Congress said that the decision is a "futile act of a bankrupt government".
Earlier, the government allowed foreign investors, not related to airline business, to buy up to 49 percent stake in domestic airlines but foreign carriers were not permitted to invest. The government had initiated the process in January but key UPA constituent Trinamool Congress was opposed to it.
This provides a potential lifeline to the country's debt-laden airlines by opening up a fresh source of funding. Earlier in the day, aviation stocks surged on hopes that the government will finally tweak rules about allowing foreign direct investment in the sector.
Most of the Indian carriers are suffering losses because of high taxes on jet fuel, rising airport fees, costlier loans, poor infrastructure and cut-throat competition.
Except IndiGo, all airlines have posted losses in the financial year ending on March 31.
Cash-strapped Kingfisher Airlines, which is burdened with a debt of over Rs 7,000 crore, has been in the forefront of pushing for permission to allow foreign airlines to invest.
The moves follow a 12 percent hike in the price of heavily-subsidised diesel on Thursday night, which some analysts saw as the government signalling its intent to reinvigorate its long-stalled reform agenda.
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