India raises foreign holding cap in airlines

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India on Wednesday raised the ceiling of foreign stake in domestic airlines to 49 per cent from 40 per cent but maintained its policy of barring foreign airlines from buying stakes in local carriers.

The cabinet decision is aimed to protect domestic private airlines from foreign management control, a policy endorsed by communist parties that give support India’s coalition government from the outside.

Praful Patel, the civil aviation minister, said the decision was “not a permanent thing” but would give domestic carriers time to grow and expand operations, including international routes.

“Our domestic carriers are going to fly overseas,” Mr Patel told the Financial Times. “India’s aviation sector is growing very fast. We feel there will be a lot of opportunities for foreign investors to buy into this growth.”

India’s civil aviation sector is undergoing rapid expansion. Its sole low-cost airline Air Deccan will be joined by at least three low-cost rivals over the next year. Airbus has forecast Indian carriers will acquire more than 200 new aircraft worth $17.5bn over the next 15 years.

Analysts say Wednesday’s decision would benefit new low-cost entrants mainly at the expense of state-owned domestic carrier Indian Airlines, which is steadily losing market share and has so far failed to expand its ageing fleet.

Its private rivals, Jet Airways and Air Sahara, which currently have no foreign holdings, plan to compete against it along south Asian and south-east Asian destinations.

But aviation analysts say an uneven regulatory climate and poor airport infrastructure could impede the sector’s growth.

Dinesh Hashim, an economist at ICRIER, a Delhi think-tank, said high sales taxes, and rules obliging airlines to buy fuel from state-owned oil companies, has pushed fuel costs to around 30 per cent of an Indian carrier’s operation expenses. In contrast, fuel costs account for around 15 per cent among the world’s most efficient airlines, Dr Hashim said.

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