Context

Recently, the government has notified amendments to Foreign Exchange Management rules and allowed NRIs 100% foreign direct investment (FDI) in Air India. The new rules is known as Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2020.

About

• Earlier in March, the Union Cabinet approved a proposal to permit foreign investment up to 100% by those NRIs, who are Indian Nationals, in case of Air India through the automatic route.
• Foreign investments in Air India Limited, including that of foreign airlines shall not exceed 49% either directly or indirectly except in case of those NRIs, who are Indian nationals.
• The amendment removes the exception which permitted Overseas Citizens of India 100% FDI in air transport, but not Air India. This category of citizens has been replaced with NRIs, now allowed to commit 100% FDI in air transport, including Air India, through automatic route.
• Substantial ownership and effective control of Air India Limited shall continue to be vested in Indian Nationals as stipulated in Aircraft Rules, 1937.
• As per the present FDI Policy, 100% FDI is permitted in scheduled Air Transport Service/Domestic Scheduled Passenger Airline (Automatic up to 49% and Government route beyond 49%).
• However, for NRIs 100% FDI is permitted under automatic route in Scheduled Air Transport Service/Domestic Scheduled Passenger Airline.
• The government permits 100% FDI under automatic route in helicopter services/seaplane services requiring Directorate General of Civil Aviation (DGCA) approval.
• Foreign airlines are 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, subject to certain conditions.
• The conditions includes that inflow must be made under the government approval route and the 49% limit will subsume FDI and FII/FPI investment.
• The investments made would need to comply with the relevant regulations of the Securities and Exchange Board of India (SEBI).