Relaxed FDI norms will ensure increased competition in the "huge" domestic aviation sector but foreign airlines will never be allowed to fully own a domestic carrier, a top government official said today.
In a significant reform measure aimed at bolstering the country's high growth potential civil aviation sector, the government has allowed foreign entities, except overseas carriers, to own up to 100 per cent stake in local airlines.
Besides, 100 per cent Foreign Direct Investment (FDI) has been permitted through the automatic route in brownfield airports.
"There will be more and more competition (in aviation sector). That is the signal that is going out," Civil Aviation Secretary R N Choubey told PTI about the relaxed FDI norms and their long-term impact.
"With 22 per cent growth rate I think it is a huge market for anybody to come and invest," he said.
India's domestic traffic has been growing in double digit since last 21 months owing to a host of factors including low fuel prices, ease of doing business and capacity augmentation by the domestic carriers, among others.
Driven by low fares, domestic air travel witnessed an increase of around 21.63 per cent in number of passengers last month as compared to May 2015.
According to an analysis conducted by the ministry, air fares declined by 18.1 per cent in the February-April period of this year over the same period of 2015.
While 100 per cent FDI has been allowed in airlines, the limit for foreign carriers remains at 49 per cent.
"Foreign airlines will not be allowed to invest more than 49 per cent. A foreign airline will never get to own a (Indian) airline," Choubey said.
Airlines operating under the scheme will be provided
viability gap funding (VGF), which will be shared by the Centre and the states concerned, for a limited period.
Towards VGF, the civil aviation ministry will create a Regional Connectivity Fund (RCF), which will be funded by a "levy or fee per departure on all domestic flights other than the ones on Category II / Category IIA routes under Route Dispersal Guidelines (RDG), RCS routes and flights using small aircraft below 80 passenger seats".
Apart from VGF, the select airlines participating in the scheme will be extended various concessions, including two per cent excise duty on jet fuel drawn at RCS airports as well as lower VAT on the fuel.
According to the ministry, state governments are encouraged to also consider "extending any additional incentives like underwriting of passenger seats to encourage operators / additionally support select airline operators in undertaking operations under the scheme".
The Airports Authority of India (AAI) will be the implementing agency for the scheme which will be in place for 10 years and the provisions will be reviewed at least once in three years.
"Airfare for all passengers seats on an RCS flight will not be subject to any levies or charges imposed by the airport operators... Service tax will be levied on 10 per cent of the taxable value (abatement of 90 per cent) of tickets for all passengers seats on RCS flight, without any input credit, for an initial period of one year from the date of notification of the scheme," the ministry said.
Interested entities can submit their proposals to be part of the scheme from today, Choubey said.
