India allows 100% foreign direct investment in its airlines

India liberalised its foreign direct investment rules in several sectors including allowing 100% foreign ownership of its airlines in a bid to make doing business in the country easier.

The move came after Governor Raghuram Rajan of the Bank of India announced on Saturday he would not seek a second-term in September.

India did not allow any foreign airlines to invest in Indian carriers until 2013 when it allowed up to 49%.

The foreign investment limits in commercial airlines will be increased by 100% and anything above its initial 49% would need approval. The stake in local airline operations in India is still restricted to 49%.

Days before the announcement prime minister Narendra Modi revealed a new aviation policy that made it easier for domestic Indian operators to fly abroad.

The new rules, however will not allow Singapore Airlines, AirAsia or Etihad Airways to increase their domestic airline shares by more than 49%. They would be able to join foreign investors to join fully foreign owned airlines.

The announcement sent shares rising in anticipation that they would be able to raise foreign capital. Shares in Interglobe Aviation were up nearly 4%, SpiceJet up 5.8% and Jet Airways up 5%.

Shares in International Consolidated Airlines, which owns the British Airways rose 6%, Germany's Lufthansa was up 3% and Franco-Dutch Air France was up 2.2%.

The announcement also said that foreign investors would be able to build new airports. For investments beyond 75% they had needed permission from the government.

KPMG consultant Amber Dubey told Bloomberg: “The government plans to go for a massive improvement in India’s global and domestic connectivity, affordability and ease of doing business.

“Indian carriers can look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment. We may see its positive impact over the next six to 12 months.”

The government also announced a liberalisation of direct foreign investment in defence, pharmaceuticals, animal husbandry, private security companies and marketing and e-commerce goods produced in India.