Indian airlines open to foreign ownership

A SpiceJet Ltd. aircraft flies over a bus as it prepares to land at Chhatrapati Shivaji International Airport in Mumbai, India, in 2013.
A SpiceJet Ltd. aircraft flies over a bus as it prepares to land at Chhatrapati Shivaji International Airport in Mumbai, India, in 2013.PHOTO: BLOOMBERG

NEW DELHI • India yesterday announced a sweeping relaxation of foreign direct investment (FDI) rules in civil aviation, defence and a string of other sectors as part of efforts to open up the economy.

The government freed up nine areas of the economy, including allowing foreign companies to wholly own local airlines as it looks to spur investment in the world's second- most populous country. Other sectors to be opened up further include food retail, private security firms and pharmaceutical production.

Prime Minister Narendra Modi tweeted that the "radical" changes would make India "the most open economy in the world for FDI" and were aimed at generating jobs for the country's tens of millions of young people.

Commerce Minister Nirmala Sitharaman said the changes were focused on making it easier for overseas firms to manufacture in India.

Under the changes, companies such as Apple could move closer to opening stores in India after the government eased regulations on local sourcing.

Overseas companies will in future be allowed to own local airlines outright, compared to a previous 49 per cent cap, with government approval. The cap on investment in defence was raised to 100 per cent from 49 per cent, subject to government approval, in cases which give India access to modern technology.

The changes come after popular central bank governor Raghuram Rajan announced at the weekend that he would not seek a second term from September. Mr Rajan is credited with helping to reform and revive the economy, and his announcement raised concerns among analysts about the government's commitment to reform.

Mr Modi stormed to power in 2014, promising an overhaul of the faltering economy. Shortly after taking over, he raised foreign investment caps in the defence and insurance sectors and for some railway projects.

Growth is now chugging along at 7.9 per cent, the fastest of any major economy. But the government has been criticised for failing to implement major reforms to boost investment and help create jobs. The announcement came after Mr Modi chaired a meeting of his top officials, looking to increase foreign investment from the US$55.46 billion (S$74.5 billion) reached last financial year.

Apple last month hit a roadblock in its plans after the government ruled that it must buy at least 30 per cent of its parts locally if it wants to open stores in India.

Mr Modi has vowed to end India's status as the world's No. 1 defence importer.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on June 21, 2016, with the headline 'Indian airlines open to foreign ownership'. Print Edition | Subscribe