Cabinet to fix FDI cap for Foreign Airlines.

NEW DELHI: The civil aviation ministry has agreed to foreign airlines picking up stakes in Indian carriers, but is insisting on a 24% cap. However, the industry ministry says it will press for a higher limit.

"The cabinet note will be moved soon. We will insist on a higher limit," a senior official of the department of industrial policy and promotion (DIPP) told ET.

"It is for the cabinet to take a call," he added.

Under the current rules, foreign direct investment ( FDI) up to 49% is allowed in aviation companies, but foreign airlines are not allowed to invest, a restriction that has discouraged investment in the sector.

The Indian industry is divided on the issue, with some private carriers opposing the proposal for the fear of large-scale takeover of the India's carriers by foreign ones.

Vijay Mallya, the chairman of embattled Kingfisher Airlines, on Tuesday called for allowing foreign airlines to invest in domestic carriers.

DIPP feels the 24% limit will not help as it does not give a real say to the investor in the functioning of the company.

Only when an investor has a more than 25% stake can it block special resolutions and thereby have a say in important decisions.

The DIPP is likely to seek at least a 26% limit and may even press for 49%. DIPP says it wants to extend all help to the embattled sector and the best way of doing that in the current situation is to open doors to foreign investments as banks are not in a position to extend more funds to the sector, the official said.

The aviation ministry has cited restriction imposed by other countries, such as the United States on foreign ownership of airlines, in recommending the limit at 24%.

India's airlines have made a combined loss of about 3,500 crore in the first half of the fiscal.

Source : economictimes.indiatimes.com