100% FDI in Air India for NRIs

• 29 Jul 2020

Why in News

Recently, the Ministry of Finance has allowed Non Resident Indians (NRIs) to have 100% Foreign Direct Investment (FDI) in Air India.

• For the same, necessary amendments have been made in the Foreign Exchange Management Rules (Non-debt Instruments), 2019.

Key Points

• Background:
  
  • In March 2020, the Cabinet approved a policy to permit foreign investment up to 100% by those NRIs who are Indian Nationals in Air India through the automatic route.
  • Foreign investments in Air India Limited, including that of foreign airlines shall not exceed 49% either directly or indirectly except in case of those NRIs, who are Indian nationals.
• New Rules:
  
  • Category of Citizens: The amendment removes the exception which permitted Overseas Citizens of India (OCI) 100% FDI in air transport, but not Air India.
    
    • This category of citizens has been replaced with NRIs, now allowed to commit 100% FDI in air transport, including Air India, through automatic route.
  • Role of RBI: The Reserve Bank of India (RBI) has been vested with the sole power to issue/interpret the rules regarding 100% FDI of NRIs.
    
    • Previously, it was required to do so in consultation with the Central Government.
• Significance:
  
  • Disinvestment: It would likely to smoothen the divestment of Air India and have an impact on the sale of the national carrier.
    
    • Substantial ownership and effective control of Air India will have to remain in the hands of Indian nationals after the divestment.
    • Further, it will lead to increased FDI inflows and thereby contribute to higher investment, income and employment.
  • Liberalisation of FDI: The amendment is meant to liberalise and simplify the FDI policy to provide ease of doing business in the country.
  • Global Visibility of Air India: The amendment would boost Brand India and provide global visibility, alternate sources of capital and broaden the investor base for Air india.
  • Need for Privatisation: Privatisation is necessary as airlines have been under strain due to Covid-19 pandemic.
    
    • Further, the government may not be in a position to fulfill the demands being made by Air India in the current situation, like providing measures for relief to its employees.

Foreign Direct Investment

• FDI is an investment made by a firm or individual in one country into business interests located in another country.
• Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.
• It is different from Foreign Portfolio Investment where the foreign entity merely buys equity shares of a company. FPI does not provide the investor with control over the business.
• Routes through which India gets FDI:
  
  • Automatic Route: In this, the foreign entity does not require the prior approval of the government or the RBI.
  • Government route: In this, the foreign entity has to take the approval of the government.
    
    • The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route.
    • This portal is administered by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.

Source: TH