Foreign investors will be allowed to own 49 per cent of Air India when it is privatised, opening the path for companies such as Singapore Airlines to take a stake in the country’s flag carrier.
The Indian government announced it would allow foreign companies to take a non-controlling stake in the struggling company as part of long-running plans to sell it off.
The cabinet in New Delhi last year gave its approval for a sale, but ministers have been grappling for the past few months with how exactly to do so.
One of the most politically sensitive decisions has been whether to allow foreign companies to bid for part or all of the airline.
While many officials think it will be difficult for domestic carriers to swallow the company whole given it has $8bn of debt, some politicians are reluctant to see what they view as a prized national asset fall into foreign hands.
Many still talk of the role the airline played in helping to airlift nearly 200,000 Indians from Kuwait before the war in 1990.
A parliamentary panel this week reportedly recommended the government find “an alternative to disinvestment of our national carrier which is our national pride”.
Atul Anjan, national secretary of the Communist Party of India, said of Wednesday’s decision: “Air India is not merely an air carrier, it is our national pride.”
Despite Air India’s status in the country’s national consciousness, it has struggled in recent years to keep up with no-frills domestic airlines and better resourced international ones.
The company has made losses for almost the entire past decade, and received a Rs422bn ($6.6bn) government bailout in 2012.
Government officials are hoping several foreign companies might enter the bidding for the company, but so far only Singapore Airlines has indicated possible interest.
Last week Leslie Thng, chief executive of Vistara — an Indian joint venture between Tata and Singapore Airlines — said the two companies were open to making an offer.
Kapil Kaul, chief executive in South Asia for the Centre for Asia-Pacific Aviation, said: “I would expect a significant interest from foreign airlines, though the offer and conditions attached will determine the level of participation in the bids.
“What’s more, this is a major reform and national economic policy decision — not just limited to aviation. It sends a very important signal to the global investors.”
At the same time, ministers also decided to make it easier for foreign retailers to set up in India, without having to partner with local companies.
The cabinet in New Delhi said foreign investors would no longer require government approval to invest more than 49 per cent in an Indian single-brand retail business.
It did not decide to do the same for retail chains who sell more than one brand, a move that would have allowed major chains such as Walmart and Carrefour, both of which have previously operated in India, to open their own stores.