Why should foreign airlines not be allowed to pick up a stake in domestic carriers? This time it is not Richard Branson asking the question but the Ministry of Finance. Even the Commerce Ministry is in favour of lifting this embargo.

Under three governments, the Civil Aviation Policy has made qualification a disqualification! Foreign airlines, since 1996, have been barred from picking up stake in domestic carriers. The new Civil Aviation Policy that was referred to the Group of Ministers last Friday has once again persisted in not allowing FDI by foreign airlines. But this time round, the Finance Ministry is questioning that wisdom.

It is learnt that the Finance Ministry has sought an explanation as to why there is a blanket ban on foreign airlines picking up a stake in domestic carriers. In fact, the Department of Revenue has told the Aviation Ministry that the policy does not reflect the Govt's intention to eventually allow foreign carriers the right to pick up a stake in domestic airlines.

Revenue Dept said to Aviation Ministry,” Even though FDI in domestic airlines has been restricted to 49%, direct or indirect investment by foreign airlines, which is not permitted now would be considered in due future. However, in the latest draft, this provision has been removed. We believe the intent of the Government to consider this aspect in the future ought to be stated in the policy."

The Department of Expenditure has also said that the Civil Aviation Ministry’s argument for not allowing foreign carriers is unclear. Expenditure Dept said to Aviation Ministry, “The rationale for blanket embargo on FDI by foreign airlines in domestic carriers is not clear and needs to be elaborated."

Sources say even the Commerce and Industry Ministry is in favour of FDI by foreign airlines in domestic carriers. Curiously, while the first Draft of the Policy had stated that the ban on FDI by foreign airlines would be reviewed, the clause was subsequently dropped in the note to the cabinet last week. The Civil Aviation Ministry hasn't stated the reason why that was done.

Civil Aviation Ministry Says, "There is already intense competition in domestic airlines sector. Entry of foreign airlines with far bugger resources would undermine the operations and profitability of the domestic airlines."

All it has offered in explanation is that there is intense competition in the domestic airline sector and entry of foreign airlines with far bigger resources would undermine the operations and profitability of domestic carriers.

But the Finance Ministry is not the only one demanding changes to the policy. The Home Ministry wants a clause that would enable the government to take over the assets of any airline in the interest of "national security". Naturally the Aviation Ministry has expressed apprehensions stating that such a clause would make private players uncomfortable. The onus is now the GoM to develop a consensus on the policy.