Decks have been cleared for the new civil aviation policy which would allow foreign airline participation in selected sectors.
Speaking to the Business Standard top government sources said that the policy which is set to be taken to the cabinet would not disallow foreign airlines in international air transport.
However the policy would require substantial ownership and effective control of the airlines by Indians. The aviation policy on the international air transport would also provide the guidelines for the divestment in carriers in Air India.
Unlike for international air transport, the policy on domestic transport does not allow any foreign airline participation. The policy specifies that foreign equity up to 25 per cent and non-resident Indian investment up to 100 per cent would be permitted for domestic passenger transport services but foreign airline participation either directly or indirectly would not be permitted. The policy adds that substantive ownership and effective control by Indians will be a pre-requisite.
Under the policy on international air traffic which was earlier circulated, domestic carriers who fulfil the minimum criteria for designation as Indian carrier to operate international passenger flights will also be permitted to meet this objective. Initially, they may be permitted to fly to neighbouring countries against unutilised rights subject to right of first refusal by national carriers.
The policy specifies that the government will ensure that traffic rights are utilised to the maximum extent possible through direct operations, creation of virtual equipment by way of joint flights, code sharing arrangements by both Air India and Indian Airlines.
Under the policy, the ministry has also sought that both airline operations as well as acquisition of aircraft are conferred "infrastructure" status for overall growth of civil aviation sector in the country. This would imply that the operators in these sectors could avail of tax holidays as well as benefits under 10(23)G of IT Act. The benefits under 10(23) G imply that dividends, interest income, lease rentals and capital gains from investments made by way of shares or long term finance in infrastructure enterprises would be exempt from income tax.
Under the policy Private sector participation will be a major thrust area in the civil aviation sector for promoting investment, improving quality and efficiency and increasing competition. In order to ensure aviation safety, security and effective regulation of air transport the policy also outlines for a statutory autonomous Civil Aviation Authority (CAA).
