The aviation ministry has proposed allowing foreign airlines to invest under 26 per cent in Indian carriers and the final decision will be made by the cabinet, civil aviation minister Vayalar Ravi told news channel CNBC TV18.
India allows up to 49 per cent foreign investment in Indian carriers but bars foreign carriers from owning stake.
With most carriers suffering losses due to high costs and debt in a crowded and competitive aviation market, the government is now mulling a change in regulation.
"FDI (foreign direct investment) is acceptable till a limited point. That limited point is still under debate," Ravi said in the televised interview.
"The proposal of my ministry is less than 26 per cent," he said, adding the final decision will be taken by the cabinet. He did not give a timeline.
The Department of Industrial Policy and Promotion and the Civil Aviation Ministry differ on the quantum of stake that foreign airlines be allowed to pick up, government sources told Reuters in October.
While the industry ministry wants foreign airlines to be allowed to take 26 per cent stake, the civil aviation ministry wants it capped at 24 per cent, the sources said.
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.
Kingfisher, which has cancelled scores of flights this month, is hunting for strategic investors to tide over a cash crunch.
Budget carrier SpiceJet has also said it will evaluate selling stake to a foreign carrier if the government were to change FDI rules.
Ravi said his ministry was also trying to persuade state governments to bring down the sales tax on jet fuel.
States heavily tax sales of aviation turbine fuel, the key input for carriers, and aviation turbine fuel prices for domestic operations in India are higher than international benchmarks.