The present rules allow foreign airlines to invest in Indian airline companies up to a limit of 49 per cent of their paid-up capital, which is, however, not applicable to Air India.
"It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49 per cent under approval route in Air India subject to the conditions that foreign investments in Air India, including that of foreign airlines, shall not exceed 49 per cent either directly or indirectly," an official release said here, following the Cabinet meeting.
"Substantial ownership and effective control of Air India shall continue to be vested in Indian national," it added.
According to sector experts, the move will attract foreign bidders.
"The decision will bring Air India at par with other domestic carriers which are allowed to attract foreign capital," Dhiraj Mathur, Partner and Leader (Aerospace and Defence) with PwC India, told IANS.
"This will increase competition and the overall participation of bidders in the divestment process. A sensible and welcome decision."
Independent aviation expert Amrit Pandurangi said: "Air India is not an easy transaction... so 49 per cent is good, but may not be good enough to make it attractive."
"They need to first sort out a number of issues on Air India's financial debt, people-related issues."
Currently, a ministerial group -- Air India-specific Alternative Mechanism -- headed by Finance Minister Arun Jaitley is looking into the modalities to divest loss-making Air India. The group has been mandated to decide on key issues such as treatment of Air India's debt and hiving-off of its assets.
Last month, Minister of State for Civil Aviation Jayant Sinha had announced that British consulting multinational EY has been appointed as transaction advisors to aid the government in the strategic divestment of Air India.
Making the announcement, Sinha said the Air India stake sale would most likely be an offering for an integrated airline through the bidding process "and both domestic and international operations will be divested as one entity".
In September, the Department of Investment and Public Asset Management had invited bids for the role of advisors to guide the government on the financial and legal issues associated with the strategic disinvestment.
The airline, which is under a massive debt burden of Rs 50,000 crore, had posted an operating profit of Rs 105 crore in 2015-16, and is expected to report an improved operating profit margin for the last fiscal.
The national carrier got a new lease of life in April 2012, when the then UPA government approved a Rs 30,000-crore turnaround and financial restructuring package spanning up to 2021.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)