What Game Is Ajit Singh Playing With AirAsia?

It is a well-known adage that the government’s right arm almost never knows what the left one is doing. But in the case of the AirAsia-Tata-Arun Bhatia proposal to start a domestic airline, this adage is being stretched to farcical limits. Civil Aviation Minister Ajit Singh and the babus in his ministry appear to be playing ball with the airline’s proposal.

Last Friday, the three partners received clearance from the Foreign Investment Promotion Board (FIPB) for setting up an airline where AirAsia will hold 49 percent equity, the Tatas 30 percent and the Bhatias the remaining 21 percent. But since then, the Ministry of Civil Aviation has been coming up with one point after another on which to stall the airline.

The Ministries of Commerce and Finance are backing the airline – which is why the proposal was cleared at the first meeting of the FIPB itself. But the Civil Aviation Ministry is coming across as one confused entity – it obviously wants to hold back the new airline but can’t seem to decide exactly what provision to quote from which rule to achieve this narrow purpose.

Minister Ajit Singh initially said he would have preferred the Tatas to launch an airline on their own, then said he had no problem with the new airline proposal but there seem to be some procedural issues with it. Next, Singh went on to assert that his knowledge of the English language was good enough – as if anyone implied otherwise. He was proably responding to a story in The Economic Times last week which said a comma in press note 6 (which allowed FDI in aviation and foreign airlines to pick up stakes in Indian ones) has ensured that this provision applies to new airlines as well as brownfield ones.

Here’s how Singh has muddied the waters repeatedly:

1) The day that the new airline received FIPB clearance, senior officials in the Ministry of Civil Aviation said Press Note 6, which allows up to 49 percent FDI in aviation, needs to be amended because it does not allow such FDI for new airlines. They said the Ministry of Commerce will issue a clarification in this regard. Today, a story in The Economic Times makes it clear that this clarification is not coming. And that there is no ambiguity about either the presence or absence of punctuation marks in that Press Note and, therefore, FDI is valid even for new airlines. Now, will Minister Singh and his babus in the Ministry of Civil Aviation insist on the clarification, written on a government letterhead, before moving ahead with the AirAsia proposal?

2) Even when debate is being created over whether the FIPB clearance is final or subject to clarification, Ajit Singh has lobbed another bombshell: he says the new airline can get a national flying permit when a story in Business Standard speaks of a regional flying permit which officials of his own ministry are offering. Since the airline is yet to take shape or make any kind of application for a flying permit at all, where is the urgency in declaring what kind of permit will be granted?

3) Over the weekend, a story in The Indian Express spoke of the possibility of the civil aviation ministry raising objections to the AirAsia application on the grounds that the proposed company could end up with majority ownership in the venture vested with the foreign partner. Again, some overactive bureaucrats are letting their imaginations run riot. If the FIPB application lists AirAsia’s equity stake as 49 percent, how will the Malaysian airline increase it unless it buys out either Indian partner? And if it does, this will immediately breach the FDI sectoral cap and, therefore, the government will be well within its rights to withdraw permission to the airline. So the irrational fear makes no sense. Anyway, today’s Economic Times carries an interview of Arun Bhatia (the smallest stakeholder in the proposed new airline) where he denies acting as a front for AirAsia’s Tony Fernandes.

The Ministries of Commerce (which drafted the Press Note allowing FDI in aviation) and Finance (which controls the FIPB) have done their bit to encourage the new airline. Now, it is the turn of Minister Singh to show some initiative and help the airline get a flying permit and start operations. After all, when the government decided to allow foreign airlines to invest in Indian carriers in September last year, after several flip-flops over the last two decades, we’re sure it was really not bothered about the colour of the investments coming. Whether it is a brownfield airline (existing airline) or a greenfield one (being set up from scratch), the purpose of FDI is to allow the sector to grow.

Minister Singh would do well to ease the flight path of AirAsia since this would encourage other potential airline investments. Already, there are reports that after the vacillation over AirAsia, other possible investors such as Japan’s ANA have decided to wait and watch. Unless Minister Singh discards his reluctance, deep-pocket investors like ANA may merely watch from the sidelines.