Mixed Bag For Civil Aviation

Jyoti Koul - New Delhi

Ashwini Kakkar

The finance minister offered a fillip to domestic civil aviation with his announcement to increase Foreign Direct Investment (FDI) participation from 40 to 49 per cent. Through the augmentation of the FDI cap in civil aviation, major private players Jet Airways and Air Sahara can raise capital to expand their business in the country.

However, the industry believed that it would have been better had the foreign airlines been allowed equity participation in domestic airlines. The decision to privatise and modernise Delhi and Mumbai airports is further expected to boost the aviation industry. On the other hand, a higher tax on leased aircraft and engines that will increase operating costs has disappointed the industry. While commenting on the move, Kapil Kaul, senior vice-president, Indian sub-continent, Centre for Asia Pacific Aviation (CAPA) said, “The 49 per cent FDI in the domestic civil aviation is a welcome step. It would have been really beneficial had the foreign airlines been allowed to be a part of the FDI. What is worse is the five per cent tax on leasing of aircraft. This will further deter major investment into the sector.”

Another concern for the aviation sector is the levy of 10 per cent service tax on airport services. Explaining further Cyrus Guzder, chairman and managing director, AFL Private Limited, said, “The increase in FDI will attract more investors. However, it must be realised that initially the FDI was planned at 74 per cent which has now been brought down to 49 per cent. There would also be a rush in the low cost arena as already 10 operators are in the queue.” Adding further Ashwini Kakkar, CEO & MD, Thomas Cook India Limited said, “The budget has asserted that reforms will continue which is evident in the FDI changes. This is a progressive step.”