The Cabinet of Indian Prime Minister Narendra Modi has approved changes to local legislation which had previously barred foreign investment in state-owned national carrier, Air India (AI, Delhi International).

Minutes of the latest Cabinet meeting state that foreign airlines will now be allowed to control up to 49% of Air India's paid up share capital. However, substantial ownership and effective control of the airline must remain in the hands of an Indian National.

The shift in policy follows Modi's decision to press on with the privatization of Air India despite a recent Parliamentary Standing Committee on Transport, Tourism & Culture recommendation that government should defer the process in favour of absorbing the airline's INR488.77 billion rupee (USD7.67 billion) debt overhang following which, it should be given a five-year grace period to turn profitable.

An interim report published by The Business Standard said the committee had noted that Air India was making progress with its ten-year Turnaround Plan (TAP), set to run from 2012 to 2022, and has shown "an overall improvement in various parameters and every indication is that it is coming out of the red".

The committee, therefore, concluded that government should review its decision to privatise or disinvest Air India and explore the possibility of "an alternative to disinvestment of our national carrier which is our national pride".

"At the end of TAP period, the government may evaluate the financial and performance status of Air India and take a decision accordingly," it said.

Narendra Modi's government has committed itself to divesting itself of Air India, long a millstone around the national fiscus's neck. A provisional June 2018 deadline for the privatization process's completion has been set.

Thus far, IndiGo Airlines (6E, Delhi International) parent firm Interglobe Aviation has openly expressed its interest in acquiring Air India's longhaul business despite government's reaffirmation that it would prefer to dispose of Air India and Air India Express (IX, Delhi International) together. Other potential bidders include India’s Tata Group and Singapore Airlines (SQ, Singapore Changi) both of which are shareholders in Vistara (UK, Delhi International).