India may soon allow foreign carriers to take an equity stake in domestic airlines to help the sagging aviation industry in the country.

The Department of Industrial Policy & Promotion (DIPP), the nodal agency on Foreign Direct Investment policy, had mooted a proposal to the government to allow foreign airlines to invest in the country.

“We have not rejected DIPP’s recommendation [on allowing foreign airlines to invest in domestic carriers]. It is under our consideration,” says Civil Aviation Minister Vayalar Ravi.

However, the civil aviation ministry has not finalized its view on the DIPP proposal, he adds.

Ministry officials say the government is toying with the idea of allowing foreign airlines to pick up a 20-25% stake in Indian carriers.

Several domestic carriers in India are not in favor of such a move as they feel that a foreign carrier, with deep pockets, could play havoc with the domestic market by artificially lowering the price of air travel and cut competition.

India currently does not allow direct or indirect equity participation by foreign airlines in Indian carriers.

“In an environment where restrictive foreign ownership in the airline industry is the norm, this protects the foreign carriers from both targeting Indian carriers for acquisition; and also using bilateral air service rights to their advantage,” says a recent report by the Confederation of Indian Industries.

Foreign investment in airlines should not be a one-way street where a country offers access and makes foreign ownership allowances without reciprocity from others, the confederation says. While open skies is a desirable long-term outcome, it cannot be achieved by a single nation alone, it says, adding that airlines are an important part of the national economy and it is important that in making allowances and concessions to international players, the health of the Indian carriers be also kept firmly in sight.