Air India Airbus A320 passenger aircraft.
An Air India Airbus A320 passenger aircraft. An inter-ministerial panel is considering the possibility of allowing 100 percent FDI in the aviation sector in a bid to attract a buyer for Air India.Reuters

An inter-ministerial panel of the government is considering various options to find a buyer for debt-ridden national carrier Air India, according to reports. The panel is even considering the prospect of allowing 100 per cent foreign direct investment (FDI) in the aviation sector to attract a buyer, reports say.

The Department for Promotion of Industry and Internal Trade (DPIIT) and the civil aviation ministry have been talking of relaxing foreign direct investment norms to attract bidders for Air India, a report on the Livemint website said, citing an unidentified official. A bid last year failed to take off because of the 49 per cent cap on ownership and the huge debt.

It is felt that if you allow 100 per cent FDI probably it will have a better effect on the Air India bidding prospects."

The government has since formed a special purpose vehicle (SPV) to transfer the airline's debt. The Air India Asset Holding Limited (AIAHL) has since been transferred nearly Rs 30,000 crore in Air India's debt. The AIAHL has also managed to raise about Rs 8,000 crore from a bond issue to service the debt. The national carrier is estimated to have a total debt of Rs 59,000 crore, apart from years of accumulated operating losses, reports say.

A better effect

In the aviation sector, currently 100 per cent FDI is allowed under automatic route for MRO (Maintenance, Repair, Overhaul), ground handling, and aircraft purchase and not for core operations. "But in airline operation, there is an issue of substantial ownership and effective control. So there, we are talking to the civil aviation ministry to see whether they are interested in liberalising it," the report quotes the official as saying.

Air India flight
An attempt to privatise Air India last year was abandoned because of lack of buyers [Representational image].Creative commons

"It is felt that if you allow 100 per cent FDI probably it will have a better effect on the Air India bidding prospects. The civil aviation ministry is also aware of that. We are taking it up with them also," the official said, according to the report.

Government approval required

The inter-ministerial group is expected to look into all sectors where 100 per cent FDI is currently not allowed. "We are looking at sectors where 100 per cent automatic route is not there. We are looking at all those sectors and are talking to all those departments, whether they want further liberalisation in that," the official said.

The DPIIT will also be consulting various trade and investment bodies to understand their requirements. Officials from different ministries, including defence, information and broadcasting, electronics and IT, and finance, will get together to discuss the matter. Although FDI is allowed through automatic route in most of the sectors, certain areas such as defence, telecom, media, pharmaceuticals and insurance require government approval for foreign investors. Under the government route, a foreign investor has to get approval of the respective ministry or department. Compared to that, the automatic route allows the investor to inform the RBI after an investment is made.

Finance Minister Nirmala Sitharaman said during her budget speech that the government wanted to raise Rs 1.45 lakh crore from divestment. However, the delay in finding buyers has made it impossible to meet the target. The massive divestment programme is the key proposal in Prime Minister Narendra Modi's strategy for making the country a $5 trillion economy.