Anti-competitive

The civil aviation ministry seems to be hyper-active. Most of the time, the results have been beneficial, but that is not always the case.

As an example of sensible change, the government clarified last week that Persons of Indian Origion (Pies) would be treated on a par with Non-Resident Indians (Norris) as far as investments in domestic aviation are concerned.

In other words, investment by Pies will no longer be considered foreign investment, and therefore will be out of the purview of the foreign investment caps that apply to the sector.

Apart from the welcome fact that this will open up the skies to even more competition, the distinction between Norris and Pies was always an artificial one; if the danger was (as the civil aviation ministry apparently felt) that FDI would masquerade as PIO, surely there is little to prevent FDI from disguising itself as NRI money too.

In the current instant, the changed policy should mean clearance for Magic Air, whose promoter is a PIO with a 60 per cent equity holding that is higher than the 49 per cent available for FDI.

While this is sensible, the plan to hike the entry barrier for airlines (probably by stipulating an equity floor of Rs 250 crore) is of dubious merit, especially since even market leaders do not have such a high level of equity.

Minimum equity or net worth floors have indeed been specified in areas like insurance and banking, but those generally had a bearing on the nature of the industry and the capital required.

Even in aviation, if the intention was to keep out non-serious players, the minimum equity stipulation could have been kept at (say) Rs 50 crore-which seems to be a level at which companies can function since aircraft financing is a well-organised business.

Rs 250 crore seems much too high a figure to be specified, and suggests that the ministry is responding to protectionist moves from the existing players.

From the point of view of travellers, the move is certainly a bad one as it will restrict the number of smaller low-cost airlines that can enter the market, and is therefore an anti-competition move.

The justification being advanced—that the country’s aviation infrastructure cannot take the pressure of new entrants—is a bogus one.

Precisely the same argument (lack of aircraft parking space) was used some years ago to keep out the proposed Tata-SIA airline, but that did not prevent the existing airlines from adding rapidly to their fleet.

Apparently, parking space and airport infrastructure are not in short supply when it comes to the existing players. In any case, the focus should be on improving the country’s airport infrastructure and this is not a matter of rocket science since all that is involved is some concreting work for parking bays and better organising of the existing terminals.

What is difficult to understand is why the Airports Authority of India couldn’t even get its bid document in order (for the contract to modernise the Delhi and Mumbai airports).