India allowed foreign airlines to buy stakes of up to 49 percent in local carriers in a long-awaited policy move, providing a potential lifeline to the country's debt-laden airlines by opening up a fresh source of funding.
Friday's decision, coming on the back of a controversial diesel price hike on Thursday, is likely to intensify conflict within the ruling Congress party coalition, with its own allies previously blocking such a move.
"This is a very positive step," said Amber Dubey, head of aviation at KPMG India, a consultancy. "I don't expect a flurry immediately... but there will be interest. A lot of people have been watching."
Newly affluent Indians, with increasing disposable incomes, have already started treating flying as a mode of transport rather than a luxury, providing a massive local market.
However, any global carrier eyeing a stake in an Indian carrier must weigh up the benefits of a market with high long-term growth potential but one that has been squeezed by high costs and fierce price competition.
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Praful Patel, India's heavy industries minister, told reporters that foreign carriers would be allowed to take a stake of up to 49 percent in local airlines. Previously investment by foreign airlines was not allowed.
The 49 percent limit includes both foreign direct investment and foreign institutional investment, according to a government document seen by Reuters.
Ailing Kingfisher Airlines
Budget carrier SpiceJet
With global airlines buffeted by the European debt crisis and high fuel costs, cash-rich and fast-growing Gulf carriers such as Dubai's Emirates, Qatar Airways and Abu Dhabi's Etihad are seen as the most likely buyers of stakes in Indian carriers, analysts say.
Boeing Co