The government has notified changes in Foreign Direct Investment (FDI) norms on civil aviation, which will permit non-resident Indian nationals to own 100 per cent stake of Air India. The gazette notification comes amid the ongoing process of strategic disinvestment of Air India. Last month, the government for the third time extended the deadline to bid for Air India as the COVID-19 fallout has disrupted economic activities globally. The deadline was extended by two months till August 31. The divestment process for the national carrier was initiated on January 27.
What
  1. These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2020, the official notification.
  2. Foreign investments in M/s Air India Limited, including that of foreign airlines shall not exceed 49 per cent either directly or indirectly except in case of those NRIs, who are Indian Nationals, where foreign investments are permitted up to 100 per cent under automatic route.
  3. Substantial ownership and effective control of Air India Limited shall continue to be vested in Indian Nationals as stipulated in Aircraft Rules, 1937.
  4. As per the present FDI Policy, 100 per cent FDI is permitted in scheduled Air Transport Service/Domestic Scheduled Passenger Airline (Automatic up to 49 per cent and Government route beyond 49 per cent). However, for NRIs 100 per cent FDI is permitted under automatic route in Scheduled Air Transport Service/Domestic Scheduled Passenger Airline.
  5. The government permits 100 per cent FDI under automatic route in helicopter services/seaplane services requiring Directorate General of Civil Aviation (DGCA) approval.
  6. Foreign airlines are allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49 per cent of their paid-up capital, subject to certain conditions.
  7. The conditions includes that inflow must be made under the government approval route and the 49 per cent limit will subsume FDI and FII/FPI investment.
  8. The investments made would need to comply with the relevant regulations of the Securities and Exchange Board of India (Sebi).
  9. Earlier in March, the Union Cabinet approved a proposal to permit foreign investment up to 100 per cent by those NRIs, who are Indian Nationals, in case of Air India.
Flashback
  1. FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country. 
  2. The FDI policy is reviewed on an ongoing basis, with a view to attract larger volumes of foreign investment inflows into the country. 
  3. 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.
  4. FDI policy provisions have been progressively liberalized across various sectors in the recent past to make India an attractive investment destination. 
  5. 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.
  6. 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 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
  7. 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.