Foreign airlines can now pick up 49% stake in India's domestic carriers, a step that is expected to give a boost to cash-strapped aviation industry.
The Cabinet Committee on Economic Affairs today approved the proposal which would pave way for much-needed equity infusion into India's airlines passing through acute turbulence as most of them are in dire need of funds for operations.
"The cabinet today approved the proposal of allowing foreign airlines to pick upto 49% stakes in Indian carrier. Though FDI of upto 49%, 75% and 100% was there in aviation sector, foreign airlines were not allowed," Civil Aviation Minister Ajit Singh told reporters after the meeting.
Current FDI norms allow foreign investors, not related to airline business, to directly or indirectly own an equity stake of up to 49% in Indian carrier.
Allowing foreign airlines to pick up stakes in Indian carriers has been a long-pending demand of the aviation sector. Most of the Indian carriers are suffering losses because of high taxes on jet fuel, rising airport fees, costlier loans, poor infrastructure and cut-throat competition.
Except IndiGo, all airlines have posted losses in the financial year ending on March 31.
Kingfisher Airlines, which is burdened with a debt of over Rs 7,000 crore, has been in the forefront of pushing for permission to allow foreign airlines to invest in domestic carriers.
Though Kingfisher has been pushing for FDI to boost the sector, Jet Airways and IndiGo have expressed reservations saying allowing global players in would lead to cartelisation and takeovers of Indian carriers.
The opening of the sector to foreign airlines may, however, bring good news for passengers who would benefit from more competitive fares, better product and services and better international connectivity.
The Manmohan Singh government had initiated the process in January but key UPA constituent Trinamool Congress was opposed to it.
Sensing that FDI proposals may be approved by the government, Kalanidhi Maran owned no-frill carrier - SpiceJet, had recently held "preliminary discussions" with a Gulf-based airline for potential investment in the budget carrier.
Foreign carriers such as British Airways and Virgin Atlantic Airways Ltd have expressed interest in investing in Indian carriers.