Friday, September 14, 2012

Relaxing FDI norms in aviation: Pros and cons

The Cabinet Committee on Economic Affairs on Friday relaxed norms for foreign direct investment in the aviation sector, allowing international airlines to invest in domestic peers.


Today’s decision means that global airlines can now invest up to 49 per cent in the aviation sector.

Here is how the move will affect various stakeholders.

Airlines:

1.The move is expected to provide much-needed cash flow to private airlines.

2.It is likely to result in an improvement in technology, both in terms of ground handling and flight operations.

3.It will bring in the best international management practices.

4.The aviation industry is divided. More successful players such as Jet Airways and IndiGo have expressed their reservation in the past. There are also fears that bigger carriers may resort to cartelization. Loss-making airlines, of course, see FDI as the knight in shining armour.

5.There are also fears that this may lead to a takeover of Indian carriers.

Government:

1.Implementing the proposal will mean likely political opposition from the Trinamool Congress.

2.Security is another concern. The government will have to keep a tab on dubious investors entering India through this route.

Passengers:

1.Fares may become competitive

2.Quality of service may go up due to competition

3.Better international connectivity