NRIs can now own up to 100% equity in Air India

New Delhi: The government on Wednesday permitted NRIs to control up to 100 per cent stake in disinvestment-bound Air India.

The decision comes at a time when the government has sought preliminary bids for 100 per cent stake sale in the national carrier.

The decision was taken in a meeting of the Union Cabinet, chaired by Prime Minister Narendra Modi.

However, foreign investments in the national carrier including that of foreign airlines shall not exceed 49 per cent, either directly or indirectly, an official statement said.

It said that the condition that substantial ownership and effective control of Air India shall continue to be vested in Indian nationals.

Although 100 per cent FDI is permitted under automatic route for NRIs in scheduled air transport service/domestic scheduled passenger airline, it is restricted to be only 49 per cent in Air India, the statement said.

"To permit foreign investment up to 100 per cent by those NRIs, who are Indian nationals, in case of Air India Ltd, the Union Cabinet...has approved to amend the extant FDI policy to permit foreign investment in Air India Ltd by NRIs, who are Indian nationals, up to to 100 per cent under automatic route," the statement said.

It said that in light of the proposed strategic disinvestment of 100 per cent of Air India by the government, it has been decided that foreign investment in Air India be brought on a level playing field with other scheduled airline operators.

The national carrier will have no residual government ownership and will be completely privately owned.

The amendment "are meant to liberalise and simplify the FDI policy to provide ease of doing business in the country," it said, adding it would lead to largest FDI inflows and thereby contributing to growth of investment, income and employment.

Addressing media on the issue, Union Minister Prakash Javadekar said that today's decision on Air India is one milestone decision.

The airline will come under private hands but it will continue to provide services to passengers and it would also increase investment opportunities, he said.

Allowing 100 per cent investment by NRIs in the carrier would also not be in violation of Substantial Ownership and Effective Control (SOEC) norms. NRI investments would be treated as domestic investments.

Under the SOEC framework, which is followed in the airline industry globally, a carrier that flies overseas from a particular country should be substantially owned by that country's government or its nationals.

Further Javadekar said that due to series of steps taken by the government to relax FDI norms in areas such as contract manufacturing, single brand retail trading and coal mining, FDI into the country has increased significantly and India has become a major destination for FDI.

He said that during 2000-2014 India had received $360 billion foreign inflows.

However, the inflows jumped to $282 billion only in five years, i.e. during 2014-19, "it was 75 per cent of what we got in 14 years," he said, adding India is "slowly but surely" becoming manufacturing hub.

Total FDI inflows in the last 19-and-a-half years (April 2000- September 2019) stood at $642 billion, while the total FDI inflows received in the last five and a half years (April 2014- September 2019) are $319 billion which amounts to nearly 50 per cent of total FDI inflow in last 19-and-a-half years, according to the statement.

Global FDI inflows have been facing headwinds for the last few years...Despite the dim global picture, India continues to remain a preferred and attractive destination for global FDI flows, it said.

"However, it is felt that the country has the potential to attract far more Foreign Investment which can be achieved, inter-alia, by further liberalizing and simplifying the FDI policy regime," it added.