The downgrade -- giving India the same rating as Zimbabwe, Paraguay and Indonesia -- means the nation's carriers can't start new service to the U.S., and their planes are subjected to additional inspections at airports there. The move is a blow to the South Asian country's efforts to boost the aviation industry after Prime Minister Manmohan Singh's government eased investment rules and spent billions of dollars to upgrade more than a dozen airports.
"U.S. and Indian aviation officials have developed an important working relationship as our countries work to meet the challenges of ensuring international aviation safety," FAA Administrator Michael Huerta said in the statement. "The FAA is available to work with the Directorate General of Civil Aviation to help India regain its Category 1 rating."
Two of 31 aviation issues raised by the FAA remain unresolved, Singh told reporters.
State-owned Air India and Jet Airways (India) are the only two carriers from India that have services to the U.S.
Indian carriers have ordered hundreds of aircraft from Boeing and Airbus as they expand in one of the fastest-growing aviation markets in the world. Singh's decision in September 2012 to ease investment rules have attracted AirAsia and Singapore Airlines to start new ventures in the nation of 1.2 billion people.
AirAsia and Singapore Air have both tied up with India's Tata Group for separate ventures while Abu Dhabi's Etihad Airways has bought a stake in Jet Airways. They are seeking to tap a market where passenger numbers are forecast to triple to 452 million by 2020.
The FAA also doesn't support reciprocal code-share arrangements between Category 2 nations and U.S. carriers, according to its website. Jet Airways has a code-share pact with United Continental Holdings Inc.
Under the International Convention on Civil Aviation (Chicago Convention), each country is responsible for the safety oversight of its own carriers, according to the FAA website. The FAA assesses the civil aviation authority of each country that has airlines operating to the U.S.
A December 2012 audit of India by the United Nations International Civil Aviation Organization identified "deficiencies," the FAA said in its release. Afterward, the FAA began its own assessment of India's DGCA, according to the release.
"The FAA has consulted extensively with the DGCA and other relevant Indian government ministries during its evaluation, including consultations in India in September and early December, and meetings this week in Delhi," the FAA said in the release.
The Indian government "has made significant progress" in addressing the shortfalls identified by the FAA, the agency said in the release. It didn't identify specific issues uncovered in the audits.
The FAA's downgrade "is of significant interest" to the European Union, Dale Kidd, a spokesman for the European Commission in Brussels, said in an e-mail. While the EU Safety List and FAA's rankings aren't directly linked, the Europeans will study the U.S. findings, Kidd said. The EU Air Safety Committee will study the issue at its next meeting in March, he said.
An IASA assessment determines if the foreign authority provides oversight to its carriers that operate to the U.S., according to international standards.
A Category 1 rating lets airlines add more services to the U.S. or to become partners with U.S. carriers, an arrangement known as code-sharing, according to the FAA website. It doesn't bar airlines from continuing existing service.
Before lowering a nation's ranking, the FAA typically spends months working with regulators in a bid to improve oversight, Steve Wallace, a retired FAA official, said in an interview. Wallace helped oversee the program in Europe and the Middle East during the 1990s.
The FAA focuses on whether a country has adequate regulations in place and a qualified staff of inspectors to ensure that airlines and maintenance bases follow the law, he said.
"It has done a tremendous amount about aviation safety internationally," he said.
The FAA's assessments of foreign nations grew out of the 1990 crash of an Avianca Holdings flight from Medellin, Colombia, to New York. The plane ran out of fuel before reaching John F. Kennedy International Airport, raising questions about the airline's safety procedures. The crash killed 73.
The FAA's program often creates controversy in other nations and has at times prompted nations to retaliate against U.S. carriers, Wallace said.