Many of Air India's aircraft have been sitting idle because of Covid-19 flight restrictions. Photo: AFP

In order to sell loss-making national carrier Air India, the Narendra Modi government has tried to make it easier to sell to foreign investors. The government will now allow Indians who have settled overseas or non-resident Indians to control up to 100% in the airline.

The decision was taken at a Cabinet meeting on Wednesday, chaired by the prime minister. The government had recently sought preliminary bids for the sale of 100% of the state-owned airline.

After the meeting, Union Minister Prakash Javadekar said: “Foreign Direct Investment policy has been amended to permit foreign investments in Air India Ltd by non-resident Indians, who are Indian nationals, up to 100% under automatic route.”

Earlier, only 49% was available for them.

Allowing a 100% investment by non-resident Indians in the carrier would also not be in violation of Substantial Ownership and Effective Control norms, which is followed by the airline industry worldwide. They will be treated as domestic investments.

Under normal practice, a carrier that flies overseas from a particular country should be substantially owned by that country’s government or its nationals. According to existing conventions, 100% of FDI is permitted in scheduled domestic carriers, subject to certain conditions, including that would not be applicable for overseas airlines.

On January 27, the government came up with a Preliminary Information Memorandum for Air India disinvestment. It proposed selling 100% of Air India along with budget airline Air India Express and the national carrier’s 50% stake in AISATS, an equal joint venture with Singapore Airlines. The last day for submitting bids is March 17.

Industry experts claim the Tata Group, Hindujas, competitor airlines IndiGo and Spicejet and some private equity investors were keen to buy Air India.

However, recently the Tatas have emerged as the front runners with its full-service airline Vistara Chairman Bhaskar Bhat claiming they are keen to evaluate the terms and conditions offered by the government. “Which company will not be interested in evaluating a sovereign airline of the country?” he asked.

There were also reports that Tata had hired Deloitte to carry out due diligence of the airline. They will detail the pros and cons of buying the airline and submit their recommendations to the Vistara board.

In 2018, the government tried to divest Air India, but there were no bidders. The government at that time offered to sell a 76% stake in Air India and retain 24%. This failed to inspire confidence among bidders as they felt government control of a quarter of the total stakes would lead to political interference.

There was also a lack of transparency regarding the employee-retention clause. Bidders weren’t ready to deal with staff who couldn’t be laid off.

Apart from Air India, the government plans to sell Bharat Petroleum, Shipping Corporation of India and some other state-owned enterprises.

The airline was founded in 1932 by Jehangir Ratanji Dadabhoy Tata, the then chairman of Tata Group. In 1953, the Indian government purchased a majority stake in the carrier from Tata Sons, but allowed JRD Tata to continue as its chairman until 1977.