The Central Government is understood to have put on hold the 26 per cent foreign direct investment (FDI) proposal for the aviation sector.
The move comes close on the heels of the decision of the government not to go ahead with the 51 per cent FDI in multi-brand retail decision for the time being.
There was an argument within the government and especially the Finance Ministry that any move at this juncture to allow enhanced FDI in aviation sector would send a wrong message among the masses as it would be seen as an effort by the government to bail out the cash strapped domestic airlines.
Policy review sought
The top honchos of the domestic carriers had met Prime Minister Manmohan Singh on November 26, seeking review of the aviation policies and allowing FDI in domestic airlines. They had stressed on the urgent need to rationalise sales tax on aviation turbine fuel and faster approvals for private airlines to fly on international routes where bilateral rights from the Indian side remain underutilised. The domestic airline chiefs, who met Dr. Singh, included Jet Airways' Naresh Goyal, IndiGo's Rahul Bhatia, SpiceJet CEO Neil Mills and GoAir's Jeh Wadia.
DIPP should consult SEBI
The Finance Ministry had also favoured the move by the Department of Industrial Policy and Promotion (DIPP) to increase the FDI limit in the aviation sector and had given its green signal to the move on Friday. However, the government appears to have developed cold feet after the recent spate of events, including the stalling of Parliament on the issue of FDI in retail.
Commenting on the Cabinet note moved by the Industry Ministry, the Finance Ministry had suggested that the DIPP should consult the Securities and Exchange Board of India on the issue as several airlines, including Kingfisher and Jet Airways, are listed companies, officials in the Industry Ministry said.
Under the SEBI's Takeover Code, an open offer is triggered once an investor acquires 26 percent stake in a listed company. The size of the open offer required is 25 per cent, which would mean that the investor will have to buy additional equity from the public.
The Planning Commission along with the Home Ministry has backed the move to open up the skies. However, the Aviation Ministry has batted for fixing a cap of 24 per cent on the FDI. The move to hold back FDI will come as a serious blow to the ailing Kingfisher Airlines, which has been desperately looking for infusion of fresh equity by a foreign partner to bail it out from its present messy situation. The company is faced with a huge Rs.750 crore in debt and the airline leasing companies are pressing it for taking back its leased aircraft.