A multi-tier reform of the Aviation sector has been unleashed. The main components of this are: a historic tariff reform, infrastructure augments, establishing new airports and creating conditions for investment, for expansion of the airline industry and also the entry of new players. So, what can be expected from this policy in the months and the years ahead?
First, the aviation sector will be a major FDI getter. The government has allowed 100 per cent FDI in domestic airlines. But this 100 pc FDI permission is for overseas entities, other than airlines. Investment by foreign airlines in domestic airlines will be restricted to 49 per cent of paid up capital. The government has made a very nuanced differentiation between a foreign investor and a foreign airline. It wants to watch the investment situation unfold and will review the experience, based on which it may allow foreign airlines to own domestic carriers and do away with the present restrictive cap on foreign airlines. Here, the motivation is obviously to get major investments into the sector but there are also national security concerns and also the imperative to ensure that no airline is able to command market dominance and distort fares in an anti-competitive manner. An inter-ministerial committee will examine the beyond 49 per cent FDI applications to ascertain whether the applying foreign capital entity has indeed an arm’s length distance from foreign airlines.
Until this pronouncement, up to 49 per cent FDI was allowed under the automatic route in domestic airlines. Now, 100 per cent FDI has been permitted, with 49 pc under the automatic route and FDI beyond 49 per cent under government approval.
Second, the airport sector has been added to the list of FDI liberalization. 100 per cent FDI under automatic route has been permitted in greenfield projects and 74 per cent FDI in brownfield projects under automatic route. FDI beyond 74 per cent for brownfield projects is under government approval.
But the most remarkable measure in the sector has been the tariff reform, called Regional Connectivity Scheme (RCS) and it has been put up for public consultation. In terms of its impact on the common people, it is huge. Air travel in India has largely been seen as elitist and for the upper crust of society or as ticket buys of enterprises and institutions. For the first time, ordinary folks in under-served locations will have access to inexpensive air travel. In India, that means a lot of destinations and a lot of people.
The traffic volumes which RCS will unleash, also means significant local job creation and growth of ancillary businesses and services.
