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Govt to launch the process of allowing foreign airlines 49% stake in Indian carriers

Allowing foreign airlines to pick up stake in Indian carriers would mark a major policy shift. Earlier foreign airlines were not allowed to invest in Indian airlines though foreign direct investment was allowed

New Delhi: Accepting a major demand of the cash-strapped aviation industry, the government on Tuesday said it would soon launch the process to allow foreign airlines 49% stake in Indian carriers, reports PTI.

A meeting between finance minister Pranab Mukherjee and civil aviation minister Ajit Singh also decided to immediately release Rs150 crore for payment of portion of pending salaries and allowances of Air India employees, including pilots.

Replying to questions after the 75-minute meeting, Mr Singh said “the question was to allow foreign airlines to participate in foreign direct investment (FDI). I discussed it with the finance minister and he has agreed. We will bring out a note for the Cabinet now.”

Allowing foreign airlines to pick up stake in Indian carriers would mark a major policy shift. Earlier foreign airlines were not allowed to invest in Indian airlines though foreign direct investment was allowed.

Asked about the FDI cap on foreign airlines, he said “49 per cent FDI is already there. The question was to allow (international) airlines to participate in the FDI. The CoS (Committee of Secretaries) has also recommended that FDI limit should be raised to 49%."

Mr Singh said FDI was one of the factors which would help the industry to survive the current financial crisis. “We all know that the aviation industry is under a lot of stress.”

On Air India, Mr Singh said Rs150 crore would be “released soon” to the ailing national carrier.

Noting that Air India pilots had recently gone on an agitation, he said “the government has decided to release sufficient funds to pay at least some part of their wages and PLI (productivity-linked incentives).”

Asked by when would the amount be released to Air India, Mr Singh said “we have agreed, the finance ministry has agreed.

So, it should be released soon. It may not be too long. This is basically money owed to the airline by the government.”

Maintaining that this was “just the first part of it” and the total was around Rs600 crore, he said several ministries have to bear the cost of VVIP travel. “Some ministries have approved it, others have to approve it. I will talk to those ministers also.”

To a question on whether Air India would also be allowed to attract foreign investment, the minister said “Air India is also a company. Let the companies (investors) consider, let the proposals come for FDI, then only we will consider”.

On Air India’s debt restructuring, he said a formal meeting of the Group of Ministers (GoM) is likely to be convened next week “where we will consider the financial restructuring plan”.

Regarding the airlines’ demand to allow direct import of jet fuel, the minister said a Committee of Secretaries has recommended that direct import may be allowed. In that case, the airline companies would not have to pay sales tax.

The issue would also be placed before the GoM, he said.

Besides the two ministers, the crucial meeting was also attended by top officers of other ministries, banks and the Reserve Bank of India (RBI).

Later talking to reporters, State Bank of India (SBI) chairman Pratip Chaudhuri said the meeting discussed different options for loan restructuring for Air India.

“Further lending to the airline would be difficult.

Therefore, the restructuring plan for Air India and the aviation sector would be discussed at a high-level meeting” later this week, he said.

The debt-ridden carrier has outstanding loans and dues worth Rs67,520 crore, of which Rs21,200 is working capital loan, Rs22,000 crore is long-term loan on fleet acquisition, Rs4,600 is vendor dues and an accumulated loss of Rs20,320 crore, according to official figures.

Tuesday’s meeting came almost a week after the Central Board of Excise and Customs froze Air India’s 11 bank accounts for non-payment of duties worth an estimated Rs300 crore. An Air India official had then said “we are making on account payments and having the accounts released”.

The GoM, at its last meeting in October last year, had decided that it could take a decision only after the RBI gave its nod to the debt restructuring plan.

In the past two months, RBI has had several rounds of meeting with Air India’s bankers, who also have met the airline's top brass to finalise the debt recast package.

The GoM is now likely to consider the recommendation by a panel of secretaries to infuse Rs23,000 crore into the national carrier over the next 10 years, of which Rs6,600 crore could be invested in the current fiscal ending 31st March.

As per its aircraft acquisition plans, Air India has already placed orders for 27 Boeing 787 Dreamliners and decided to take them on sale and leaseback mode. Two of these planes are expected to be delivered by March.

Under the leaseback mode, an airline purchases aircraft from the manufacturer and sells them to a leasing company and then gets the planes back on lease. This erases the aircraft purchase debt from the airline’s books.

Two days ago, a US court rejected a plea by American carriers challenging the US Exim Bank’s decision to give loan guarantees of $1.3 billion to support Air India’s fleet acquisition from Boeing.

The bank has also decided last October to give a $2.1 billion preliminary commitment to support future deliveries of Boeing planes to the national carrier, which was legally challenged by the industry body of all major US airlines.


Difficult months ahead, growth could fall to below 7%: FM

Our growth for 2011-12 may be around 7% plus or even less than that. There are also concerns “about central government finances for the current fiscal,” finance minister Pranab Mukherjee said

New Delhi: Warning that the months ahead are difficult, finance minister Pranab Mukherjee on Tuesday said the growth rate could fall below 7% in the current financial year from 8.5% a year ago, reports PTI.

“...we have difficult 2 -3 months in the current fiscal.

Our growth for 2011-12 may be around 7% plus or even less than that. There are also concerns about central government finances for the current fiscal”, he said while speaking at the CNBC TV18 Business Leadership award function.

He, however, expressed hope that the Reserve Bank of India (RBI) would take appropriate steps in its forthcoming monetary policy review on 24th January to keep the growth momentum.

“Going forward, I am sure RBI will take into account important concerns of balancing the targets of controlling inflation and keeping up growth and employment generation,” he said.

The economic growth during the first half of the current fiscal has slipped to 7.3% from 8.6% in the corresponding period a year ago.

On fiscal deficit, he said the performance during the first half of 2011-12 poses some risks on both receipts as well as expenditure.

“Adhering to the fiscal deficit target of 4.6% of the gross domestic product (GDP) in 2011-12 is a major challenge,” he said.

The government proposes to bring down the fiscal deficit in the current fiscal to 4.6% of the GDP from 4.7% a year ago. However, the surge in subsidy bill and poor realisation from disinvestment has made the task difficult.

According to official estimates, the subsidy bill of the government is likely to exceed by about Rs1 lakh crore during 2011-12. As far as disinvestment is concerned, the government has been able to mop up around Rs1,100 crore only against the target of Rs40,000 crore.

Referring to the price situation, Mr Mukherjee said inflation, which has come down to 7.47% in December from 9.11% a month ago, would further moderate in the coming months.

“There are some clear signals of inflation moderating in the coming months. I am expecting it (inflation) to be in the range of 6%-7% by end March,” he said.

The improvement in index of industrial production (IIP) numbers and inflation situation, he added, “indicates some improvement in the overall economic parameters in second half for 2011-12.

“I hope to see this trend get consolidated in the coming months with some policy correction. India's growth fundamentals are strong and they look more attractive in a world challenged by problems of confidence and lack of growth,” he added.

Attributing the rupee depreciation to global factors, he said, the pressure on the domestic currency was likely to continue until some solution is found to the sovereign debt problem of the Eurozone countries.

“There has been a moderation in the level of foreign institutional flow and this has resulted in declining equity indices and a sharper depreciation of rupee in forex market”, the minister said.

Rupee depreciation, he added, was also being driven by global factors and “the pressure would continue until there is a solution to sovereign debt problem in Eurozone.”

The Indian currency has depreciated by over 16% against US dollar in the current financial year.


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