Mumbai - India's foreign investment panel on Thursday approved plans by Singapore Airlines and the giant Tata Group to start a new airline, a senior official said.
Even though the Foreign Investment Promotion Board cleared the venture, a series of other regulatory approvals are needed before the new carrier can start flying.
Economic Affairs Secretary Arvind Mayaram confirmed the clearance to reporters after the board meeting, but did not give any details.
Tata Sons will hold a 51% stake and Singapore Airlines (SIA) 49% in the new venture, which was announced last month, as they seek to exploit one of the world's fastest-growing aviation markets.
The airline, to be based in New Delhi, will have an initial combined investment of $100m from the two stakeholders.
The venture is the third foreign direct investment in the aviation sector since the Indian government said last year that international airlines could buy as much as 49% in local carriers.
The Tata Group is setting up another venture with Malaysia-based budget carrier AirAsia, which is expected to start operations in coming months.
The government has also cleared the way for Abu Dhabi-based Etihad to pick up a stake in Indian private carrier Jet Airways.
India's aviation sector was once celebrated as a sign of the country's vibrant economy, but its fortunes have faded owing to a range of obstacles ranging from aggressive fare rivalry and rundown infrastructure to expensive fuel.
India is one of the world's biggest aviation markets as its large and growing middle-class scrambles for air travel, spurred by rising incomes.
Air travel penetration is currently very low, with an average of just 48 trips per 1 000 people per year, well below developed countries such as the US with over 2 300 air trips per 1,000 people, according to government figures.