This is seen as the first in a series of steps from the government to further open the economy and boost growth by clearing pending reforms in the foreign investment regime.

The icing on the cake for Team Manmohan is that the Left parties have approved the FDI hike in aviation, which was pending for quite some time. The decision comes a day after the prime minister made a strong pitch for FDI in infrastructure.

Interestingly, the government has put aviation FDI on the automatic clearance route, but retained the bar on foreign airlines. Decisions to this effect were taken by the Union Cabinet here on Wednesday. "Today's decision means that FDI proposals in aviation need not go through the Foreign Investment Promotion Board (FIPB)," finance minister P Chidambaram told reporters after the Cabinet meeting. This will cut the red tape and prevent case-by-case approvals, which may have led to discrimination.

Overseas entities indirectly associated with foreign carriers cannot invest in domestic airlines. "No direct or indirect equity participation by foreign airlines is allowed," official sources said. The civil aviation ministry had emphasised on the need to retain the bar while proposing higher FDI in line with the announcement made by Mr Chidambaram in the full Budget for '04-05.

Civil aviation minister Praful Patel had indicated earlier that reforms in the aviation sector would be initiated after the Maharashtra elections. As reported by ET on October 18, the Maharashtra election outcome has speeded up the decision on this keenly-watched issue which had led to hectic lobbying in the past.

Apart from allowing Jet Airways, Air Sahara and Air Deccan to induct FDI up to 49%, the UPA government's decision could also help in the privatisation of Indian Airlines.

A simple clearance from the Reserve Bank of India will be adequate to hike FDI limit in domestic airline companies to 49%, provided the norms related to the bar on foreign carriers are adhered to. NRI investment to the tune of 100% is already allowed in airlines. Overseas Corporate Bodies are also allowed to invest up to 100% in airline companies.

Meanwhile, the Cabinet Committee on Economic Affairs has approved a one-time non-Plan budgetary assistance of Rs 138.33 crore to Indian Airlines to clear the liabilities of Vayudoot.

Indian Airlines had taken over the liabilities of Vayudoot as the government had decided to merge the grounded regional carrier with IA. The dues are owned to HAL, ONGC, and other oil companies and banks. The CCEA has also decided to write off the dues amounting to Rs 19.07 crore, out of which Rs 15.97 crore is due to the ministry of civil aviation.