Government chases FDI in aviation to make up current account deficit

In a significant development, the government through different ministries is pressing for the entry of two major FDI venture by foreign companies in the domestic aviation sector. The two foreign companies- Dubai based Etihad and Singapore based AirAsia are set to make their Indian entry through their proposed alliances with Jet Airways and Tata respectively.

In the case of AirAsia- Tata alliance there is a hurdle that the set 49% FDI limit in the sector is applicable for existing domestic airlines. The AirAsia Tata proposal is a new entity, without existing operation in the country. Here, the government is going to make a clarification by extending the ceiling to new companies as well.

An entirely different problem is prevailing in the case of Etihad’s proposed venture with Jet Airways. The Dubai based firm has concerns about the turbulent situation in the domestic aviation sector. The failure of Kingfisher and the inability of some foreign leased firms to withdraw their aircrafts is a bad lesson for them. As a security measure, it seeks for investment protection through a bilateral agreement. The government on this matter is going to sign a Bilateral Investment Protection with UAE in the coming months.

Efforts for FDI alliances in the aviation sector are thus progressing with momentum. The real reason for the government’s die hard approach is the high current account deficit for the current year. Already, the current account deficit has reached a level of 5.4% of GDP. Only option to tide over the worse situation in this difficult time is to attract more investment. On this regard, the two major FDI proposals in the aviation sector are opportunities with bulk returns.

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