The cabinet will shortly consider a proposal to allow foreign airlines to pick up stakes in cash-strapped domestic carriers, local media reported on Monday, citing unnamed government officials.
The Economic Times newspaper reported on Monday that the industry ministry has circulated a draft cabinet note for inter-ministerial consultation after a nod from the civil aviation ministry.
The Department of Industrial Policy and Promotion (DIPP) has argued foreign airlines be allowed to pick up a 26 percent stake in local firms, it said.
The civil aviation ministry has asked for the cap to be 24 percent or lower, the Business Standard paper said on Monday, citing a senior DIPP official.
India allows foreign investment of 49 percent in Indian carriers, but foreign airlines are not allowed to invest directly or indirectly in domestic airlines.
Officials at DIPP and the civil aviation ministry could not be immediately reached by Reuters.
Earlier in October, Civil Aviation Minister Vayalar Ravi had said his ministry had not rejected the FDI proposal sent by the DIPP and the plan was under consideration.
Most Indian carriers, with the exception of IndiGo are loss-making and full service carriers such as Air India, Jet Airways and Kingfisher Airlines have high debt on their books.
Efforts by Kingfisher and Jet to raise equity from the capital markets have been unsuccessful so far.