New Delhi, Oct. 20: The government today raised the limit on foreign direct investment (FDI) in domestic airlines to 49 per cent without the need to seek prior approval.
Earlier, the FDI limit was 40 per cent. However, the government barred foreign airlines from picking up any direct or indirect stake in domestic airlines.
Aviation was the least controversial of the three sectors over which the government is locked in a standoff with the Left. The Left parties said they have no problem with today's approval.
The government also approved 100 per cent FDI in domestic airlines by non-resident Indians (NRIs) and overseas corporate bodies through the automatic route. Overseas corporate bodies are companies in which NRIs own at least 60 per cent of the shares.
The decision means that proposals from foreign entities to invest in domestic airlines need not go through the foreign investment promotion board (FIPB), finance minister P. Chidambaram told reporters after a cabinet meeting. The other conditions remain the same, he added.
Chidambaram had announced the government's intention to raise the FDI limit in civil aviation, telecom and insurance in his budget speech in July ' sparking protests from the Left.
Last month, a meeting between Chidambaram and Left leaders had narrowed differences over the proposal to raise the FDI limits. The Left agreed to allow an increase in the FDI in domestic airlines but opposed plans to raise the caps in the more controversial areas like insurance and telecom.
By raising the FDI cap, domestic scheduled and non-scheduled airlines will get more equity investment from foreign investors and this will increase their competitiveness, said a release issued after the meeting.
The high-powered Naresh Chandra Committee, which was set up by the erstwhile National Democratic Alliance government, had proposed the increase in the FDI limit in domestic aviation.
A group of ministers, formed by the NDA government early last year to look into FDI in several key sectors, had recommended an increase in the limit to 49 per cent in aviation.
'We have no objection (to the move) because the cabinet has decided to increase the FDI cap from 40 per cent to 49 per cent in domestic private airlines only,' CPM politburo member Sitaram Yechury said.
He said there was nothing amiss in the decision since management control still remained with the domestic airline companies.
However, Yechury said the Left had expressed reservations on other aspects of civil aviation, including allowing foreign airlines to pick up stake in domestic airlines and privatisation of airports. The airports issue is still under discussion with the UPA government.