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 run up to the Budget session of Parliament, the Cabinet has decided to accept some of the key recommendations of the Select Committee on the Lokpal and Lokayuktas Bill, 2011. The Bill, passed by the Lok Sabha in December 2011, was referred to a Select Committee by the Rajya Sabha. The Select Committee gave its recommendations on the Bill a year later in November 2012. At the Cabinet meeting held on January 31, 2013, the government has accepted some of these recommendations (see here for PRS comparison of the Bill, Select Committee recommendations and the approved amendments). Key approved amendments Lokayuktas: One of the most contentious issues in the Lokpal debate has been the establishment of Lokayuktas at the state level. The Bill that was passed by the Lok Sabha gave a detailed structure of the Lokayuktas. However, the Committee was of the opinion that while each state has to set up a Lokayukta within a year of the Act coming into force, the nature and type of the Lokayuktas should be decided by the states. The Cabinet has agreed with the suggestion of the Committee. Inclusion of NGOs: Currently, “public servant” is defined in the Indian Penal Code to include government officials, judges, employees of universities, Members of Parliament, Ministers etc. The Bill expanded this definition by bringing societies and trusts which receive donations from the public (over a specified annual income) and, organizations which receive foreign donations (over Rs 10 lakh a year) within the purview of the Lokpal. The Committee had however objected to the inclusion of organisations that receive donations from the public on the ground that bodies such as a rotary club or a resident’s welfare association may also be covered under the Lokpal. Bringing such entities within the Lokpal’s purview would make it unmanageable. The Cabinet decided not to accept this recommendation stating that this view had been accepted by the Standing Committee while examining the version of the Bill introduced in the Lok Sabha. However, the government has exempted trusts or societies for religious or charitable purposes registered under the Societies Registration Act. Procedure of inquiry and investigation: A key recommendation of the Committee was to allow the Lokpal to directly order an investigation if a prima facie case existed (based on the complaint received). The Cabinet has accepted this suggestion but suggested that the Lokpal should, before deciding that a prima facie case exists, call the public servant for a hearing. An investigation should be ordered only after hearing the public servant. Also, the Cabinet has not accepted the recommendation of the Committee that a public servant should be allowed a hearing only at the end of the investigation before filing the charge-sheet and not at any of the previous stages of the inquiry. Power to grant sanction: One of the key reasons cited for delays in prosecuting corrupt public officials is the requirement of a sanction from the government before a public servant can be prosecuted. The Bill shifts the power to grant sanction from the government to the Lokpal. It states that the investigation report shall be considered by a 3-member Lokpal bench before filing a charge-sheet or initiating disciplinary proceedings against the public servant. The Committee recommended that at this point both the competent authority (to whom the public servant is responsible) and the concerned public servant should be given a hearing. This has been accepted by the Cabinet. Reforms of CBI: There are divergent views over the role and independence of the CBI. The Committee made several recommendations for strengthening the CBI. They include: (a) the appointment of the Director of CBI will be through a collegium comprising of the PM, Leader of the Opposition of the Lok Sabha and Chief Justice of India; (b) the power of superintendence over CBI in relation to Lok Pal referred cases shall vest in the Lokpal; (c) CBI officers investigating cases referred by the Lokpal will be transferred with the approval of the Lokpal; and (d) for cases referred by the Lokpal, the CBI may appoint a panel of advocates (other than government advocates) with the consent of the Lok pal. All the recommendations regarding the CBI has been accepted by the Cabinet except one that requires the approval of the Lokpal to transfer officers of CBI investigating cases referred by the Lokpal. Eligibility of Lokpal member: According to the Bill, any person connected with a political party cannot be a member of the Lokpal. The Committee’s recommendation was to change the term connected to affiliated to remove any ambiguity about the meaning. This suggestion was accepted by the government. Now the interesting question is what happens if the Rajya Sabha passes the Bill with these amendments. The Bill will have to go back to the Lok Sabha for its approval since new amendments were added by the Rajya Sabha. If the Lok Sabha passes these amendments, the office of the Lokpal may finally see the light of day. (See here for PRS analysis of the Lokpal and Lokayukta Bill, 2011).
