The approval, the first of a series of steps needed before Air India can be sold, signals Prime Minister Narendra Modi’s determination to fend off union opposition and sell an asset some economists have long argued should be in private hands.
India will now form a committee to decide on the details, Finance Minister Arun Jaitley said on Wednesday, including the size of the stake to be sold and whether the government should write off part, or all, of Air India’s 520 billion rupees (6.17 billion pounds) in debt – a step some officials say is a must to attract buyers.
Air India was bailed out in 2012 with $5.8 billion of federal funding.
Previous attempts to sell the state-owned airline have floundered, in part due to a lack of potential buyers.
Once India’s biggest airline, Air India’s market share in the booming domestic market has slumped to 13 percent as private carriers such as IndiGo, SpiceJet and Jet Airways expanded.
Low-cost carrier IndiGo has a 40 percent share of the domestic market.
(Reporting by Aditi Shah; Editing by Muralikumar Anantharaman)