Union Budget 2019-20: Air India disinvestment set to take off again

Easier FDI norms unlikely to benefit aviation sector, given issues of ownership and control, say experts

Updated - July 06, 2019 12:42 am IST

Published - July 05, 2019 10:26 pm IST - NEW DELHI

Finance Minister Nirmala Sitharaman announced on Friday that the government will re-initiate disinvestment of national carrier Air India as well as open up Foreign Direct Investment (FDI) in aviation.

The Minister didn’t spell out what FDI rules would be eased but industry experts say it is unlikely to be allowed for airlines as norms require substantial ownership and effective control to rest within India.

There is 100% FDI allowed in aviation, but foreign airlines can only invest up to 49% in an Indian airline. Also, foreign investment in Air India is capped at 49%.

The government’s decision to revisit privatisation of Air India follows an attempt last year that met with failure when no private player came forward to express an interest in the debt-laden carrier.

The Finance Minister laid emphasis on encouraging financing and leasing activities in the country so that India could become a self-reliant aviation industry. She added that the government will implement necessary regulatory provisions to enable this.

Maintenance infra

Ms. Sitharaman also spoke about creating a congenial environment for Maintenance, Repair and Overhaul (MRO) industry, which could leverage India’s engineering advantage and potential but didn’t detail how this would be achieved.

The current taxation regime discriminates against domestic MROs where it is cheaper for airlines to send aircraft for maintenance to foreign countries rather than getting them serviced within India, which has forced a large number.

The government may also plan a grid for regional airports being developed under the government’s UDAN (Ude Desh Ka Aam Nagrik) scheme aimed to take air travel to the masses and enhance air connectivity between Tier-2 and Tier-3 cities.

The budget allocation for the Ministry of Civil Aviation has seen a drastic reduction of 53% primarily because the government has not set aside anything for Air India.

The total allocation for 2019-2020 is ₹4,500 crore as against ₹9,700 crore last fiscal.

Among the key components are ₹1,084 crore for two Boeing 777 VVIP planes undergoing retrofit in the U.S. and another ₹2,600 crore for servicing Air India’s partial loan of ₹29,000 crore, which is now parked in a special purpose vehicle called Air India Assets Holding Limited.

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