FDI cap for Air India to remain at 49%

The Government has emphasized Air India’s special exemption in terms of foreign direct investment (FDI) policy that imposes a ceiling of 49% on all foreign investments. It must be noted that that for private airlines, non-aviation companies can have up to 100% FDI, whereas there is a cap of 49% for foreign airline companies. However, the entire cap of 49% stays for Air India.

This development comes in the wake of Tata Sons’ wholly-owned subsidiary Talace Pvt Ltd successfully bidding for Air India at INR 18,000 crore. Earlier this week, the government had issued a letter of intent (LOI) to Talace for taking over Air India. Tuhin Kanta Pandey, Secretary in the Department of Investment and Public Asset Management (DIPAM) had the following to say to BusinessLine, “No such request is with us for Air India saying it is necessary to change. By nature of the contract also, there is an equity lock-in period. There is no emergent need. We will cross that bridge when it comes.”

As Air India is a national carrier and a central public sector enterprise (CPSE), a special condition for foreign investment was put in place that states “Foreign investment(s) in Air India Ltd, including that of foreign airline(s), shall not exceed 49% either directly or indirectly except in case of those NRIs, who are Indian nationals, where foreign investment(s) is permitted up to 100% under the automatic route.” In addition, majority ownership and immediate control of Air India will continue to remain with an Indian national as stipulated in Aircraft Rules, 1937.

It is key to remember that after the strategic sale is completed, Air India will no longer function as a CPSE, thus its national carrier status will need to be clarified by the government. This strategic disinvestment has three specific clauses, which are listed as under:

• There will be equity lock-in for one year
• The successful bidder will have to ensure business continuity for at least three years
• No brand or logo can be sold within the first five years. After that, if sold, it can be offered to an Indian entity only

Government officials have admitted that the clauses are a safeguard, and they will not necessitate any change in FDI policy.