Govt favours 49% FDI in aviation

New Delhi, January 17
The government will soon set the ball rolling on allowing foreign airlines a 49% stake in cash-strapped Indian carriers.

The issue was discussed today at a meeting attended by Finance Minister Pranab Mukherjee, Civil Aviation Minister Ajit Singh and top officials from related ministries and banks. Many airline majors, including Kingfisher Airlines promoter Vijay Mallya, have been demanding foreign investment in cash-strapped carriers.

Leading global consultancy company KPMG has welcomed the move, terming it as "much needed relief for the Indian carriers."

The government also decided to immediately release Rs 150 crore as payment of a portion of pending salaries and allowances of Air India employees, who went on agitation only two days ago.

"The government had decided to release sufficient funds to pay at least some part of wages and PLI (productivity-linked incentives)," said Ajit Singh. As additional major relief for airlines, a committee of secretaries has recommended direct import of jet fuel, which constitutes 40 to 50% of an airline's operating costs.

At present, in some states, airlines have to pay taxes ranging up to 24 % on ATF. The issue, along with the one related to restructuring of the debt of Air India, would be placed before a GoM, Singh said. The Civil Aviation Ministry will now prepare a Cabinet note allowing foreign airlines a 49% stake in Indian carriers.

"49% FDI is already there. The question was to allow (international) airlines to participate in the FDI. The Committee of Secretaries has also recommended that FDI limit should be raised to 49%," Singh said, hoping that FDI would help the industry survive the current financial crisis. "We all know that the aviation industry is under a lot of stress," he said.

SBI chairman Pratip Chaudhuri said different options were discussed for loan restructuring for Air India. However, further lending to the airline would be difficult.