"It is good that Tatas are setting up a full service airline. It will increase competition, something which the government wants," said a senior official.
The proposal of Tatas and Singapore Airlines for a new joint venture, entailing a foreign investment of USD 49 million, is likely to come up before the Foreign Investment Promotion Board (FIPB) for approval on October 18.
Headed by Economic Affairs Secretary Arvind Mayaram, FIPB is an inter-ministerial panel for approving Foreign Direct Investment (FDI) across sectors.
Tatas already have a JV with Malaysian carrier AirAsia for a low cost carrier which is likely to start India operations later this year.
"We are of the view that more players the merrier. Also preliminary study of Tata-SIA proposal shows that representation of JV partners on board is as per the Companies Act," the official said.
The substantial ownership and effective control of the JV will be with Tatas, holding 51 per cent stake, the proposal said, adding that SIA would have a minority representation on the board and "will not be in a position to have 'de-facto' control over the Board".
While Tata Sons will hold 51 per cent stake in the new venture - Tata SIA Airlines Ltd - Singapore Airlines (SIA) will hold 49 per cent.
The proposed venture will also require approvals from agencies like the DGCA and tax department as well as other ministries.
The companies had last week announced a pact to set up a new full-service airline with an initial investment of USD 100 million.
"High foreign investment inflows would further strengthen the civil aviation sector," the two partners said in an application to the FIPB, while seeking approval for the USD 49 million worth FDI by SIA.
Attempting an aviation venture for the third time, Tatas and SIA have also said that the JV will create significant job opportunities in India.