FDI in Aviation might take off

The Union Government is likely to introduce changes in the FDI norms for the domestic aviation sector, which may allow foreign airlines to acquire a minority stake in domestic airlines. Said Dr Nasim Zaidi, Secretary, Civil Aviation, 'The Government is in the process of reviewing the existing Foreign Direct Investment policy framework in the domestic aviation sector'. The DIPP has drafted a Cabinet note proposing foreign airlines to pick up stake in domestic carriers up to 26 per cent.

According to the present norms, 49 per cent FDI is allowed in airport infrastructure-related projects, but there are restrictions on foreign investment in domestic airlines. If the proposal goes through, domestic carriers like Jet Airways, Indigo, Spicejet and Kingfisher Airlines are likely to get benefitted from it.

Apart from this, during the month, the government reversed an order that said equity shares issued by Indian companies to foreign investors with a put option will not be considered as FDI after it faced strong opposition from foreign investors, including private equity firms. A put option gives an investor the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. The DIPP in its midyear review of FDI policy on 1 October 2011 had made the change which is now invalid.

The earlier restriction issued as a part of the consolidated FDI policy held that only equity shares which are fully, compulsorily and mandatorily convertible preference shares, with no in-built options would qualify as eligible instruments for FDI. Equity instruments with in-built options will be considered as debt and have to comply with the external commercial borrowing guidelines issued by the RBI.

During the month, the government on recommendations of the FIPB, approved 11 FDI proposals worth Rs 182.78 crore, including that from 9X Media to increase foreign equity participation up to 100 per cent.

Media firm 9X Media had sought FIPB approval to increase foreign equity participation from 80 per cent to 100 per cent, and to make downstream investments up to 100 per cent. The proposal, if implemented, would attract Rs 26.20 crore worth FDI. Other than this, Pran Beverages' proposal for FDI worth Rs 16.45 crore by way of induction of foreign equity by a company from Bangladesh was given a go-ahead. DMVFonterra Excipients' proposal which entails induction of foreign investment of up to 100 per cent in the capital of a newly incorporated LLP engaged in the business of manufacturing and sale of pharmaceutical excipients, was also approved. This would bring in FDI worth Rs 39.36 crore.

However, the FIPB deferred decisions on nine proposals, including those of Vodafone Essar and Mauritius-based Ventureast Life Fund III LLC, and rejected six applications. The proposals that were rejected include those of Chennaibased GV Films and Hughes Communications India.

Further, the FDI inflows in India increased to 50 per cent at $21 billion (approx Rs 1,02,900) during January-August 2011. During January-August 201O, the country attracted FDI worth $13.85 billion (approx Rs 67,865 crore). The sectors that attracted maximum FDI during the first eight months during 2011 include services (financial and non-financial), telecom, housing and real estate, construction and power, as per the data release by the DIPP.