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by Devesh Agarwal
India’s Foreign Investment Promotion Board (FIPB) today gace an in-principle approval to the Joint Venture (JV) company proposal of AirAsia, the Tatas and the Bhatias. The stated goal of this JV company is to form and operate an airline most likely AirAsia India, based out of Chennai.
As per a report, the JV will initially invest about Rs. 80 crore (approx $14.5 million), well above the minimum Rs. 50 crore requirement to start an airline. The JV will now have to approach the aviation regulator The Directorate General of Civil Aviation (DGCA) for obtaining a permit to start and operate an airline.
On the same day there is a report of senior aviation ministry officials clarifications from the Department of Industrial Policy and Promotion (DIPP) on whether the JV proposal complies with the Government’s guidelines on FDI in Indian carriers by foreign carriers.
Bangalore Aviation readers will recall, just about two weeks ago, I had raised this very point in my article.
When the cabinet approved the policy on September 14, 2012, the press statement said
“……there has been a need to consider financing options available for private airlines in the country, for their operations and service upgradation, and to enable them to compete with other global carriers. Denial of access to foreign capital could result in the collapse of many of our domestic airlines, creating a systemic risk for financial institutions, and a vital gap in the country’s infrastructure”
The doubt stems from the lack of clarity in the guidelines on whether the revised FDI policy also allows investments in to fresh start-up airlines, in additional to the stated policy of existing airlines.
If allowed to invest in start-ups, it will enable foreign carriers to bypass infusing funds into existing Indian carriers, thus defeating a stated goal of the policy.
Then it will be the Indian tax-payer finally bearing the debt burden of these Indian carriers, who are largely financed by tax-payer paid “public sector” banks.
It will be interesting to see further developments, though I feel the proposal will go through. The Tatas are an extremely methodical, competent and powerful company. Behind the scenes, they will have worked tirelessly to ensure no embarrassment due to a public rejection.
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