The current aviation FDI cap was not attractive enough and an increase would help troubled airlines, like Air India and Jet Airways, find buyers, sources said.
The Substantial Ownership and Effective Control (SOEC) clause bars any foreign investor from taking complete control of an airline, run by a board that has two-third members as Ind.
In the last budget speech in July, Finance Minister Nirmala Sitharaman said the government proposed to hike the FDI limit in domestic air carriers from the 49 per cent.
"The government will examine suggestions of further opening up of the aviation, media (animation, AVGC) and insurance sectors in consultation with stakeholders," she had said.
In the aviation sector, the 100 per cent FDI is allowed under automatic route for MRO (maintenance, repair, overhaul), ground handling and aircraft purchase.
"In the airline operation, there is an issue of substantial ownership and effective control. Thus, the Civil Aviation Ministry will have to see all these to sell Air India, which would require liberalising FDI in the sector," said an official.
"The 100 per cent FDI will have a better effect on the Air India bidding prospects. The Civil Aviation Ministry is in the loop," said sources.
Jet Airways had been grounded since April 18 due to acute fund crunch.
( With inputs from IANS )