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Foreign airlines were allowed to invest under government approval route in the 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 in 2012.

Air India has got a new lease of life with the government allowing foreign direct investment up to 49 percent in the bleeding national carrier.

Hailing the decision of the government, the pioneer of low-priced airlines in India, Gopinath said that it was a positive step but wanted the Centre to slowly withdraw from the state-owned airline. The airline's domestic network covers 52 destinations, including far-flung areas of the North-East, Ladakh, Andaman and Nicobar Islands.

The provision was however not applicable to Air India.

India's decision to relax FDI norms in various sectors would make it a much more attractive destination for overseas investors, US-India Strategic Partnership Forum (USISPF) said today.

"Our priority is the further expansion of Vistara".

The move is expected to clear the way for Singapore Airlines and Tata Group-backed Vistara to bid for Air India. "However, we will keep our options open with respect to the proposed disinvestment of Air India", Singapore Airlines said in an e-mailed statement to PTI.

The cabinet chaired by Prime Minister Narendra Modi gave its nod to several amendments in the FDI policy, including foreign investments in Air India under the approval route, which is subject to certain conditions.

"Substantial ownership and effective control of Air India shall continue to be vested in Indian national", the release said.

Foreign airlines will be able to buy up to 49% p of Air India under new rules approved by the government on Wednesday to boost the debt-laden flag carrier.

CAPA, in an earlier note, had said that the government should clean up its balance sheet and Air India Express and special business units such as Air India Engineering should be sold separately.

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