The Indian government formally approved a proposal to sell a stake in state run flag carrier Air India.
Finance minister Arun Jaitley announced an "in principle approval for the disinvestment" opening the way for a private investor to take a stake.
The government gave no indication whether that would be limited to a minority stake or whether it would consider a complete selloff.
Budget carrier IndiGo is keen to take a stake in Air India, minister of state for civil aviation Jayant Sinha said on Thursday.
Sinha also added that unnamed foreign entities have also expressed an interest.
India recently revised laws allowing foreign direct investment in the airline industry.
Former Air India executive director Jitender Bhargava urged the government to allow a complete sell off.
"If the government holds even a minor stake, the propensity to meddle, to do backseat driving can’t be curbed," he told AFP.
"I am convinced that Air India can’t be revived or survive in its current state. It is a good move."
Although it posted a rare profit last year, the airline has been struggling for years and was propped up with a US$5.8 billion bailout package from the government in 2012.
It currently has a 12% market share behind low cost carriers such as IndiGo and SpiceJet.
