Industry body CII today suggested that the government liberalise the FDI policy to allow

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foreign airlines to invest up to 49 per cent in cash-starved domestic air-carriers.

"A liberal FDI regime would pave the way for foreign airlines to participate in India's aviation sector and strengthen it. A comprehensive policy direction is needed to address the prevailing crisis and lay a path for future growth," CII said in a statement.

It said the aviation sector in the country is going through a tumultuous phase and the policy should create an enabling framework for a safe, secure and investor-friendly environment.

A liberal FDI regime would also instill confidence among foreign investors, including overseas hedge funds and private equity groups, in domestic carriers, it said.

Currently, the government allows foreign direct investment (FDI) up to 49 per cent in Indian carriers by non-airline players, but bars foreign airlines from investing in them, primarily due to security reasons.

A Group of Ministers (GoM) on Civil Aviation headed by Finance Minister Pranab Mukherjee is likely to meet on February 9 to debate on the issue.

CII also asked the government to ramp up the MRO (maintenance, repair and overhaul) business in India and suggested rationalisation of taxes and customs duties.

Servicing an aircraft in India entails service tax of 12.36 per cent, as compared to nil tax overseas, it said, adding that the import of spares involves customs duties of 25.4 per cent.

Giving deemed export status to the MRO business in India and allocation of land for hangars at airports would also promote the sector, it said.

CII also suggested a regulator for the air transport sector.

It said that the regulator's role and responsibilities could include promotion of healthy competition in the aviation sector, in addition to air safety, airspace regulation and consumer protection.

The regulator should attempt putting in place a mechanism to stop predatory pricing in air fares, it said.

On aviation turbine fuel, CII suggested that sales tax on ATF should be made specific instead of ad-valorem and permission for direct import of ATF should be granted to airlines.