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Editorial: Opening up India's skies

Published by The Straits Times, Singapore on 2004-10-25

The decision by India's coalition government to raise the ceiling on foreign investment in the domestic civil aviation sector may not appear impressive at first glance. That's because the Congress-led 14-party coalition of Prime Minister Manmohan Singh agreed to allow foreign investors - but not airlines - to buy up to 49 percent equity in the country's two domestic carriers, Jet Airways and Air Sahara, and a number of other privately-owned carriers that are springing up to service India's rapidly growing internal air passenger traffic. The increase is only nine percentile points. Mr Singh's decision does not apply to the two government owned carriers which carry the most number of passengers, Indian Airlines and Air India, both known for their inefficiency and poor service and which desperately need funds to upgrade service and expand routes. None of the domestic carriers has much of foreign equity at present, although there are reports that at least one of them may be receiving funds from Indians based in Singapore and Dubai. Most of the US$3 billion that India receives annually in foreign direct investment goes into the manufacturing and technology sectors. Another US$7 billion goes into securities.

The real significance of Prime Minister Singh's decision lies in what was not announced - the virtual certainty that other sectors such as insurance, telecommunications and tourism will soon be allowed to invite more foreign equity. The prime mover behind the civil aviation decision was Mr Praful Patel, India's Minister for Civil Aviation, who wants to not only promote more internal competition in his industry but is also seeking foreign equity to improve India's dilapidated airports. Mr Patel was a highly successful entrepreneur in his native Maharashtra, India's biggest industrial state, before being inducted into Mr Singh's cabinet, much of which consists of professional politicians of assorted ideologies, including socialism. Both Mr Singh and Mr Patel are convinced that India - whose annual economic growth rate has ranged between six and eight percent over the last two years - will become an economic superpower over the next two decades. That's why they are vigourously promoting economic liberalisation, often over the objection of India's recidivist leftists. In Harvard-educated Mr Palaniappan Chidambaram, the Finance Minister, along with Mr Kamal Nath, the Minister for Commerce and Industry - who last week urged foreign investors to help create more jobs in poor rural regions - Mr Singh and Mr Patel have colleagues totally committed to open markets. But will foreign investors respond in a timely fashion? India's population of 1.1 billion, while still mostly poor, has a rapidly growing middle class of 400 million people. That already makes India the non-communist world's single largest market, one that cannot be ignored in this age of growing globalisation. India's message to foreign investors is clear: There's money to be made here.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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