Sources told PTI that the civil aviation ministry has asked the Department for Promotion of Industry and Internal Trade (DPIIT) to remove the clause which restricts FDI in Air India to 49 per cent.
A draft note has been circulated on the issue seeking comments from different ministries, they added.
In the case of scheduled airlines, 49 per cent FDI is permitted through automatic approval route and any such investment beyond that level requires approval.
Under the Substantial Ownership and Effective Control (SOEC) framework, which is followed in the airline industry globally, a carrier that flies overseas from a particular country should be substantially owned by that country's government or its nationals.
Making a second attempt in as many years to divest loss-making Air India, the government came out with the Preliminary Information Memorandum (PIM) for 100 per cent stake sale on January 27.
Besides, Air India's 100 per cent stake in budget airline Air India Express and 50 per cent shareholding in AISATS, an equal joint venture with Singapore Airlines, have also been offered.