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New Delhi, Sept. 12: Finance and civil aviation ministries are likely to cross swords over a key proposal to hike foreign direct investment (FDI) in civil aviation.
The ministry, currently studying the N. K. Singh Committee report on ways to boost foreign capital flows, has decided to oppose plans drawn up by the finance and commerce ministries to raise the FDI limit in domestic carriers, or allow foreign airlines to pick up stake. No foreign carrier is allowed to hold equity in local airlines under a policy that caps FDI at 40 per cent.
The commerce and finance ministers, Murasoli Maran and Jaswant Singh, met on the issue today to decide how to follow up the Singh panel’s recommendations.
Though both have been advised by Prime Minister Atal Bihari Vajpayee to tread cautiously and take decisions only after building a consensus, officials said the two ministers would discuss portions of the report, including those relating to finance firms, insurance and civil aviation, with the administrative ministries.
However, the civil aviation ministry is reluctant to change its airline policy, even loath to allow 100 per cent investment in airports through the automatic route. It prefers routing 100 per cent investments through the FIPB, and big proposals via the Union Cabinet.
“We are still studying the issue and will respond at the right time,” civil aviation minister Shahnawaz Hussain told The Telegraph. Senior officials in his ministry said they had made up their mind on opposing a move they argue is not warranted at this point. “Security considerations had dictated the policy to debar foreign airlines from the domestic sector. Unless those factors go away, a change is not needed,” they said.
The ministry feels 100 per cent FDI in airports should continue to be routed through FIPB; proposals where the amount involved is large must go to Cabinet.
“Airports are security-sensitive areas. It is necessary to vet the antecedents of those who want to set up or run them. National interest would hardly be served if an airport is promoted and managed by business group close to Maoist China or to Al-Qaeeda,” they added.
Plans to privatise airports, however, remain on course. “We have decided to bring in private operators for four metro airports and those in 10 other towns. These are in Amritsar, Ahmedabad, Trivandrum, Calicut, Lucknow, Kulu, Jaipur, Udaipur, Goa, Trichy, Khajurao and Gaya,” the civil aviation minister said. Hussain said leading business and tourist airports in India would have to come up to south-east Asian standards, an initiative that could bring in Rs 16,000 crore.
The BJP top-brass is not in favour of Singh and Maran’s efforts to get more FDI in civil aviation or insurance companies. The N.K. Singh panel wants FDI in insurance hiked to 49 per cent, but BJP top-guns are railing against it since it could give multinationals control over insurance firms and the massive funds at their disposal. This could dictate the pattern long-term investments. The feeling is that opening the floodgates now could sink the BJP in state elections due next year.
There was a near mutiny by BJP MPs when the Cabinet cleared 26 per cent FDI in insurance. To blunt the criticism the government defined “Indian ownership” in narrow terms to ensure foreign money over 26 per cent does not sneak in through the back door.