Reforms in India: Government Allows FDI in Aviation

September 19, 2012 Posted by India Briefing Reading Time: 2 minutes

Sept. 19 – The government of India has recently decided to permit foreign airlines to buy stakes of up to 49 percent in local carriers. This has been a highly anticipated policy move that provides for potential support to India’s debt-laden airlines by opening up a fresh source of funding.

Experts from the aviation sector believes that it will benefit only if the sector fundamentals are changed and, no foreign carrier can change that with any amount of investment. Airlines are pessimistically impacted by the sheer raise in airport tariffs (more than a 350 percent hike by Delhi Airport) and increased ground handling charges (40 percent increase announced).

Additionally, southward-biased fare structures do not support a high operating cost setting. However, analysts from the particular sector say the move is welcome and it will promote Indian carriers in a mid-term to long-term period.

Analysts also believe that it will be choosy interest by global airlines, primarily because the fiscal condition of the global airline industry is not in the best of conditions.

Already the share of aviation companies in the market has been rallying because of the FDI news. It allows the fundraising by domestic carriers who are currently finding it tough to raise money from banks.

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