The Indian government has eased ownership rules surrounding Air India, allowing up to a 49% stake to be held by foreign investors.

The decision, announced following a meeting of the Indian government’s Cabinet on Jan. 10, is part of the policies of the pro-business government of Prime Minister Narendra Modi, to liberalize and simplify the country’s Foreign Direct Investment (FDI) policy to make it easier to do business there.

The government hopes that such liberalization will lead to an inflow of overseas investment that will boost the economy without impinging on the state’s budget commitments. FDI inflows have grown steadily in recent years, from $36 billion in 2013-14 to a record $60 billion in 2016-17.

The government’s previous FDI policy had stipulated that Air India was off-limits to overseas investors, while foreign airlines could take only up to 49% of the shareholding of other Indian carriers.

The government has now decided to allow foreign airlines to invest up to 49% in Air India, as long as the ownership and effective control of the airline continues to be vested in Indian citizens or organizations.

Air India has failed to make a profit since its merger with domestic carrier Indian Airlines in 2007 and has struggled in recent years, both because of its high operating costs and following the appearance of new competitors such as IndiGo, SpiceJet and Jet Airways.

Alan Dron