RBI questions FDI changes in aviation sector

NEW DELHI: The Reserve Bank of India has sought clarification on some specific changes in the new foreign direct investment (FDI) policy and the rationale for the shift before it incorporates them in the foreign exchange rules.

In a letter to the Department of Industrial Policy and Promotion (DIPP), the key government body for framing foreign investment policy, the Reserve Bank of India has questioned the policy changes in certain aviation sectors.

The new FDI policy issued on April 1 has retained the 74% ceiling on non-scheduled air transport services, chartered and cargo airlines, and ground handling services.

However, the new policy allows only 49% FDI under the automatic route as opposed to entire 74% earlier. Any foreign investment in excess of 49% has to now be approved by the Foreign Investments Promotion Board, or FIPB.

The RBI has asked the DIPP to not only confirm the change but also give the rationale for this tightening of the rules before it notifies the changes in the Foreign Exchange Management Act, or FEMA.

Under the automatic route, a foreign investor doesn’t need government’s approval to make investments in India, whereas prior approval of the FIPB is required for investments falling under government route.

Investments up to 100% for non-resident Indians (NRIs) falling under the automatic route for both the sectors remains unaltered.