After proposing to hike the foreign investment limit in domestic civil aviation sector, the government is likely to relax the stipulations regarding investments in domestic airlines.

The government is taking a re-look at guidelines pertaining this sector and may allow funds with links to airlines to invest in domestic carriers.

The current regulations prohibit financial institutions with links to airline companies to invest in domestic Indian carriers. It also prevents financial institutions with airlines as a shareholder to invest in a domestic airline company.

However, foreign airlines will not be allowed to invest in an Indian carrier. "While the policy continue to not to permit foreign airlines to invest in Indian carriers, funds which have investment in airlines may be permitted to invest in an airline. This will help them bring in their expertise in the airline industry," said a senior government official.

Even though the government is likely to insist on ownership and effective control of the airline with the Indian partner, the foreign investor is likely to be given more a say in the operational issues of the airline.

To ensure that the control of the company remains with the Indian partner, the government is likely to stipulate that the domestic company should have agreements with the foreign partner so that the effective control of the management of the company stays with the Indian company.

Foreign investors in a domestic airline will be allowed to hold one third of the board positions in the company, while the remaining members and the chairman of the board would be Indian citizens.

Another area that is likely to come for review is the ban on financial arrangements with foreign airlines for lease finance, hire purchase and other loan arrangement. The present policy prevents any such arrangements.

The domestic Indian carriers will also be allowed to lease aircraft from foreign airlines. The new guidelines is also expected to permit marketing arrangements such as ground handling, general sales agency, code sharing, etc with foreign agencies.