On September 14, 2012, the central government announced that foreign airlines would now be allowed to invest up to 49% in domestic airlines. Under the policy announced by the government, the ceiling of 49% foreign investment includes foreign direct investment and foreign institutional investment. Prior to investing in a domestic airline, foreign airlines would have to take approval of the Foreign Investment Promotion Board. Additionally, the applicant will also be required to seek security clearance from the Home Ministry. In 2000, the government first permitted foreign direct investment up to 40% in the domestic airline sector. However, no foreign airline was allowed to invest either directly or indirectly in the domestic airlines industry. Non Resident Indians were permitted to invest up to 100%. Furthermore, the foreign investor was required to take prior approval of the government before making the investment. Subsequently, the central government eased the foreign investment norms in this sector. As of April 2012, foreign direct investment is permitted in all civil aviation sectors. The Civil Aviation sector in India includes airports, scheduled and non-scheduled domestic passenger airlines, helicopter services / seaplane services, ground handling Services, maintenance and repair organizations, flying training institutes, and technical training institutions. Foreign airlines were not permitted to invest either directly or indirectly in domestic passenger airlines. However, they are permitted to invest in cargo companies and helicopter companies. Investment by foreign airlines in the domestic airline industry has been a long standing demand of domestic airlines. According to the Report of the Working Group on Civil Aviation for formulation of twelfth five year plan (2012-17), India is currently the 9th largest civil aviation market in the world. Between 2008 and 2011, passenger traffic (domestic and international) and freight traffic increased by a compounded annual growth rate of 7% and 11% respectively. The traffic growth (passenger and freight) at 18% exceeded the growth rate seen in China (9.7%) and Brazil (7.5%), and was higher than the global growth rate of 3.8%. According to the Centre for Civil Aviation, until February 2012, India had the second highest domestic air traffic growth. However, due to the crisis faced by Air India and Kingfisher, the passenger numbers have declined in June-July 2012. India was the only major domestic market that failed to show an expansion in demand in June 2012, as compared to the previous year. Despite the rapid growth, the financial performance of airlines in India has been poor. According to the Report of the Working Group on Civil Aviation, the industry is expected to have a debt burden of approximately USD 20 billion in 2011-2012. According to the same report, during the period 2007-2010 India's airlines suffered an accumulated loss of Rs 26,000 crores. According to the government, investment by foreign airlines shall bring in the much needed funds and expertise required by the domestic industry. However, as per to some analysts, foreign investment alone cannot solve the problem. According to them, the major cost impacting the growth of the industry is the high cost of Aviation Turbine Fuel. As per the press release by the government on June 6, 2012, ATF accounts for 40% of the operating cost of Indian carriers. In comparison, fuel constitutes only 20% of the cost for international carriers. ATF in India is priced, on an average, 60% higher than international prices. This is due to the high rate of taxation imposed on ATF by some states. In most states, the VAT on ATF is around 25-30%.
In the last few weeks, after the 16th Lok Sabha election, there has been some debate around powers of the central government to remove Governors. News reports have suggested that the central government is seeking resignations of Governors, who were appointed by the previous central government. In this blog, we briefly look at the key constitutional provisions, the law laid down by the Supreme Court, and some recommendations made by different commissions that have examined this issue. What does the Constitution say? As per Article 155 and Article 156 of the Constitution, a Governor of a state is an appointee of the President, and he or she holds office “during the pleasure of the President”. If a Governor continues to enjoy the “pleasure of the President”, he or she can be in office for a term of five years. Because the President is bound to act on the aid and advice of the Council of Ministers under Article 74 of the Constitution, in effect it is the central government that appoints and removes the Governors. “Pleasure of the President” merely refers to this will and wish of the central government. The Supreme Court’s interpretation In 2010, a constitutional bench of the Supreme Court interpreted these provisions and laid down some binding principles (B.P. Singhal v. Union of India). In this case, the newly elected central government had removed the Governors of Uttar Pradesh, Gujarat, Haryana and Goa in July, 2004 after the 14th Lok Sabha election. When these removals were challenged, the Supreme Court held:
In summary, this means that the central government enjoys the power to remove Governors of the different states, as long as it does not act arbitrarily, without reason, or in bad faith. Recommendations of Various Commissions Three important commissions have examined this issue. The Sarkaria Commission (1988) recommended that Governors must not be removed before completion of their five year tenure, except in rare and compelling circumstances. This was meant to provide Governors with a measure of security of tenure, so that they could carry out their duties without fear or favour. If such rare and compelling circumstances did exist, the Commission said that the procedure of removal must allow the Governors an opportunity to explain their conduct, and the central government must give fair consideration to such explanation. It was further recommended that Governors should be informed of the grounds of their removal. The Venkatachaliah Commission (2002) similarly recommended that ordinarily Governors should be allowed to complete their five year term. If they have to be removed before completion of their term, the central government should do so only after consultation with the Chief Minister. The Punchhi Commission (2010) suggested that the phrase “during the pleasure of the President” should be deleted from the Constitution, because a Governor should not be removed at the will of the central government; instead he or she should be removed only by a resolution of the state legislature. The above recommendations however were never made into law by Parliament. Therefore, they are not binding on the central government.
