The government has decided to take a fresh look at the policy on foreign direct investment in domestic airlines. Besides, work on a comprehensive civil aviation policy has also been set in motion.

When finaslised, this will be the second initiative by the United Progressive Alliance government to change a decision by the National Democratic Alliance in the civil aviation sector.

The UPA government earlier this month decided to cap FDI in the modernisation of Mumbai and Delhi airports at 49 per cent from the earlier cap of 74 per cent. The previous NDA government had decided not to allow FDI in domestic airline citing security concerns.

The UPA government now wants to allow domestic private carriers to consolidate and attain their economies of scale through increased investment and capacity.

"We will take a fresh look at allowing FDI in domestic airlines," Praful Patel, minister for civil aviation said after a meeting with commerce and industry minister Kamal Nath.

According to Kamal Nath, government is examining options that would suit domestic carriers as well as the Indian civil aviation sector. It was also hinted that even after investment by a foreign airline into India, there will be enough safeguards to ensure that the airline traffic is not diverted from India.

"We want to stimulate investment in the aviation and that is going to happen. But we want to have a policy which will have numbers that will work," said Kamal Nath.

According to Kamal Nath, "We want to look afresh at how the policy will facilitate flights for trade, consumers and tourist." The thinking is that the international airlines should not be allowed to take away traffic from India by diverting their hubs, sources said.

As per the present policy the government permits 49 per cent foreign investment in the domestic airlines. However, investment by foreign airlines are not allowed in the domestic aviation sector.

The foreign investment policy is also restrictive in nature, aims at preventing management control by the foreign investor in the domestic airline.

The proposed civil aviation policy will be taken up by the Cabinet by the end of this month. The civil aviation ministry is also consulting other ministries including tourism, home, external affairs, finance and defense for finalising the policy.

The government is also reviewing the Naresh Chandra committee recommendation on the policy. Sources also said that the Chandra committee recommendation will be the basis of the civil aviation policy.