Forbes India 15th Anniversary Special

Breaking the shackles of India's aviation sector

The new National Civil Aviation Policy and FDI regulations provide an opportunity for national carriers to improve their balance sheets and for people to enjoy an exciting flying experience in the years ahead

Published: Jun 22, 2016 03:25:00 PM IST
Updated: Jun 22, 2016 05:03:12 PM IST
Breaking the shackles of India's aviation sector
Image: Shutterstock

For the longest time, the Indian aviation sector was considered a rich man’s industry. While the industry continues to be highly taxed, the efforts of the government through the new National Civil Aviation Policy to make flying more affordable are laudable. Besides, tweaking the 5/20 rule to a 0/20 rule, which now does not restrict Indian airlines to wait for five years before flying overseas, would bring in much-needed competition into the space.  

More so, by allowing up to 100 percent FDI in the aviation sector, which has caveats attached, the government has given Indian airlines a chance to improve their balance sheets. Of course, by capping the amount of FDI being invested by foreign airlines to 49 percent, it is to be seen what other kind of foreign investors would be interested in risking their monies in an industry which has been accumulating losses in excess of $1 billion, consistently, for the last decade. A concern that Peeyush Naidu, partner at Deloitte India, also shares: “While the increase in FDI for aviation is welcome, as it will allow flexibility, we are unlikely to see investors suddenly rushing to invest in airlines just because the cap of 49 percent has been removed.” He goes on to add, “It remains to be seen whether other investors such as private equity players and the like would have the risk appetite to make such investments.”

That said, on paper, all these recent developments in the aviation industry augur well for the airlines and passengers. Air Pegasus MD Shyson Thomas believes that the new FDI norms along with recent policy changes “would act as a catalyst for funds to pour into the Indian aviation sector that is on cusp of take off”. He has indicated that he is in the market to raise around Rs 100 crore to grow his regional airline. And he quite excitedly says, “As part of our plans, Air Pegasus will operate to airports with no connectivity like Puducherry, Bellary, Salem and Vellore in the next six months and we will be working with the government in providing virgin connectivity to unconnected sectors.” Hope that this excitement lingers on in the months and years to come and that the common man gets a chance to fly.

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