PIO holding in domestic carriers retained at 49%

Investment norms for NRIs and PIOs not at par yet.

Persons of Indian origin (PIOs) aspiring to hold 100 per cent stake in private Indian carriers will have to wait for some more time before they can make their move.

This is because the Directorate-General of Civil Aviation (DGCA) issued a notification on July 27, reiterating the existing guidelines that restrict PIO holdings to 49 per cent.

Existing policies allow non-resident Indians (NRIs) to hold 100 per cent in a domestic carrier, but cap investments by all other foreign entities, including PIOs, at 49 per cent.

The latest notification by the DGCA, which is a part of the civil aviation ministry, comes less than a month after the department of economic affairs (DEA) and department of industrial policy and promotion (DIPP) ruled that investments by PIOs be treated at par with investments by NRIs.

The notification by DGCA says that the investment guidelines have been issued after a communication from the civil aviation ministry to this effect on July 11.

But sources in the civil aviation ministry said a Cabinet note will be moved soon on the issue of treating investments by PIOs at par with that of NRIs soon. "We expect the Cabinet to take a final view on the status of investments by PIOs in the domestic aviation sector," said a ministry official.

What status PIOs will be accorded is a question that has driven a wedge between government departments concerned with the matter. The DEA and the civil aviation ministry had said PIO investments should be treated as foreign direct investment, while the DIPP had favoured equal status for PIOs and NRIs.

This decision of the civil aviation ministry has put in limbo the application of Nira Radia, a PIO, to start a domestic carrier owned 60 per cent by her. The application of Radia, who holds 60 per cent of Magic Air's equity, had been blocked due to the stand taken by the DEA and the civil aviation ministry.

The commerce ministry has, from the beginning, held that PIOs should be treated at par with NRIs. The finance ministry, in June this year, took the view that PIOs, who have been granted dual citizenship, are a subset of NRIs. The ministry has so far taken the stand that FDI in Magic Air has breached the regulatory ceiling of 49 per cent.

The government had raised the FDI cap in domestic aviation from 40 per cent to 49 per cent in November 2004, when the Cabinet also allowed 100 per cent investment by NRIs in Indian carriers. But the Cabinet had not taken a call on the status of PIO investments.

While considering FDI norms proposed by the civil aviation ministry in November last year, the Cabinet had observed that the issue of PIOs being accorded parity with NRIs in case of FDI should be examined in a time-bound manner. The Cabinet had asked the DEA for its views on this issue.