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How a comma in FDI policy let AirAsia fly (Relevant for GS Prelims, GS Mains Paper III; Economics)

The interpretation of a ‘comma’ in India’s foreign direct investment (FDI) policy may have helped AirAsia get a flying licence to start operations in India in a joint venture with Tata Sons Ltd.

What is Air Asia?
AirAsia (India) Ltd, a joint venture between Tata Sons Ltd (49%) and Malaysia’s AirAsia (49%), started operations in June 2014.

What are the charges by CBI?
The criminal case registered by the Central Bureau of Investigation (CBI) against AirAsia Group’s CEO and others indicates the involvement of United Progressive Alliance government in clearing the investment proposal by AirAsia to start operations in India.

CBI raided the offices of AirAsia India and filed a complaint against Tony Fernandes, the CEO of the Malaysian parent, for allegedly lobbying the government for overseas flight permits and violating rules.

The FIR also said that unnamed officials from the aviation ministry and Foreign Investment Promotion Board (FIPB) entered into a criminal conspiracy with top AirAsia executives.

What is the relevant provision of FDI policy?
The operative part of the consolidated FDI policy that FIPB relied on to grant clearance to AirAsia reads as follows: “Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital.”

What are the different interpretations?
While the policy may lead one to believe that FDI up to 49% is allowed only in “operating” Indian airlines, FIPB concluded that the policy holds for greenfield projects as well, thanks to the comma between “Indian companies” and “operating”.

According to others, the sentence means “Indian company which would operate”. “Had there been no comma, it would have meant it is an already operating company. By putting a comma, it makes a difference, as it becomes present continuous. So, AirAsia could invest in an Indian company.

On whether the introduction of the word “operating” in the FDI policy was a mistake, some say it was just “badly drafted”.

What is the acceptable view?
The normal procedure for companies in sectors where FDI was allowed under government approval route to first apply for FIPB approval and then seek a licence from the authorized regulator or ministry.

“The Tatas and AirAsia had applied to form a joint venture company in which AirAsia would have 49% shareholding. Most greenfield investments in India are done like this. First you give the approval, then they form a company and then they go and ask for a licence. When it’s a brownfield investment, an approval is given for investment in an existing company. FIPB gave similar clearance to Vistara also when they did not have a licence or a company,” he said.

Regarding the alleged violations against AirAsia, FIPB only approved allowing 49% FDI in an airline. “Once the FIPB gave its approval, they had to go to the civil aviation ministry for the licence. It was for the ministry of civil aviation to see that they fulfilled all the conditions of the policy because the aviation policy was enunciated by the civil aviation ministry. Before AirAsia was given the licence to operate, civil aviation would have examined the proposal. But FIPB had nothing to do with that. Our clearance was for investment in an airline in India. This query should be made to the civil aviation ministry,” he added.

(Adapted from Livemint)



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