AirAsia Bhd's proposal to set up an airline jointly with the Tata group was approved on Wednesday by the Indian government's foreign investment regulator, paving the way for the first foreign carrier to enter the domestic aviation sector.

Malaysia's AirAsia, the largest budget carrier in Asia, plans to launch a regional airline in India with an initial investment of 800 million rupees to cash in on rising demand for domestic air travel among India's rapidly expanding middle class.

The new airline, AirAsia India, will be managed by the Malaysian company and based in the southern Indian city of Chennai.

AirAsia, through its investment arm, will own 49 percent of the new airline, with Tata Sons Ltd, the holding company of salt-to-software conglomerate Tata group, owning 30 percent. Arun Bhatia, who owns Telestra Tradeplace, an investment firm, will hold the remainder.

"It's been cleared," said Arvind Mayaram, India's economic affairs secretary, when asked about the deal. "Now they will have to take the necessary licences from the DGCA. They can start operating now once they get the licence."

The DGCA is India's aviation regulator, the Directorate General of Civil Aviation.

Earlier on Wednesday, Aviation Minister Ajit Singh said he does not expect any major hurdles for the venture.

India's aviation industry, which has been plagued by losses due to high operating costs and fierce competition, was opened to foreign investors in September last year. Foreign carriers are now able to purchase up to 49 percent of local airlines.