In a significant reform move, the government on Monday allowed 100 per cent FDI in airlines and relaxed norms for overseas investments in brownfield airports.
Aimed at attracting more funds into the aviation sector with a high growth potential, the NDA government's latest measure comes less than a week after the unveiling of the National Civil Aviation Policy.
The announcement also comes against the backdrop of persisting concerns over ownership and control at local carriers where foreign players have a substantial stake.
Now, 100 per cent foreign investment will be allowed in "scheduled air transport service/domestic scheduled passenger airline and regional air transport service", an official release said.
Only non-airline players will be allowed to bring in 100 per cent FDI in local carriers.
Under the new set-up, 49 per cent will be through the automatic route and for anything beyond, government nod will be required. At present, up to 49 per cent FDI is permitted in scheduled airlines.
"For NRIs, 100 per cent FDI will continue to be allowed under the automatic route," the release said.
"However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49 per cent of their paid-up capital and subject to the laid-down conditions in the existing policy."
However, maintaining the status quo, foreign airlines will be allowed to invest only up to 49 per cent in Indian carriers.
The decision to relax FDI norms was taken at a meeting chaired by Prime Minister Narendra Modi on Monday.
Interestingly, a proposal to hike the FDI limit from 49 per cent in local airlines in the draft civil aviation policy did not find a place in the final document, which was approved by the Cabinet on June 15.
With regard to airports, the government has permitted 100 per cent FDI in brownfield projects through the automatic route.
Currently, 100 per cent FDI is allowed through the automatic route in greenfield airport projects while it is 74 per cent in brownfield ones.
"With a view to aiding in modernisation of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100 per cent FDI under automatic route in brownfield airport projects," the release said.
Back in 2012, then UPA government had permitted 49 per cent FDI in domestic airlines by foreign carriers. The move paved the way for setting up of two new airlines -- Vistara and AirAsia India -- and investment by Etihad Airways in Jet Airways.
Vistara is 49 per cent owned by Singapore Airlines while Malaysia's AirAsia Berhad has 49 per cent stake in AirAsia India. In both carriers, the Tatas have a substantial stake.