New Delhi, April 30: The ministry of civil aviation will allow Qatar Airways to set up an airline in India as long as they follow the rule books - which are foreign airlines cannot own more than 49 per cent stake and two-thirds of the board must be Indians for local control.

"They can theoretically give 51 per cent of their stake to foreign non-airline investors such as Qatar Investment Authority, their state sovereign fund, while keeping 49 per cent with Qatar Airways ... however, the policy says two-thirds of the board of directors and the chairman of the airline have to be Indian to prove that effective control is in the hands of Indian citizens," said top officials.

Last month, Qatar Airways CEO Akbar al Baker at the prestigious ITB Berlin travel show had spoken of the possibility of a fully Qatar- owned airline, sparking off both interest among consumers and concerns among Indian airlines flying on domestic routes. Sources said the Qatari-owned airline could be based in Bangalore and have a 100-strong fleet to be built up over a short span of three years.

India's civil aviation policy allows up to 100-per-cent foreign equity, capping airline equity at 49 per cent and allowing foreign institutional investors to take the remaining 51 per cent. The policy also stipulates that effective control should be in Indian hands and thus demands an Indian-controlled board.

Qatar rival Etihad Airways has a 24 per cent stake in Jet Airways and has been successful in driving Indian traffic to its Abu Dhabi hub.

Jet also has an airline pact with Emirates which allows Emirates passengers from Dubai to use their miles on Jet flights within India and similarly allows Jet passengers to use Emirates flights to Europe, the US and Africa.

"Proving effective control to be Indian will be Qatar's major challenge unless it can come with an Indian partner, because in any legal challenge, the courts may not go by mere letter of the law but the intent of the law," said officials. The Federation of Indian Airlines, which represents Indian airlines, including SpiceJet, Jet and Indigo is likely to oppose the entry of Qatar.

"Clearly, the intent of the civil aviation policy has never been to allow totally foreign controlled airlines to operate in India," said U.K. Bose, former CEO of Air Sahara, which was bought by Jet in 2006. Bose pointed out that no major country "allows foreign owned airlines to operate domestically." Both the US and Canada limit foreign ownership in airlines to 25 per cent; Korea permits 49 per cent; while EU, too, caps foreign ownership at 49 per cent.

Officials said in stipulating local control the government's objective was to treat aircraft as a national resource which should be requisitioned in times of war for defence use. "Carriers can be and have been used as essential airlift for military cargo."

The FIA had earlier taken the aviation ministry to court over the grant of licences to AirAsia India, which is 51 per cent owned by Tata Sons and 49 per cent by Malaysia's AirAsia; and Vistara, in which Tata Sons and Singapore Airlines Ltd are partners. However, in both these cases the argument has been that effective control lay with the Indians.

"The government of course has the right to do away with the issue of effective control by Indians if it so chooses ... I am not against Qatar coming in. But I do feel it is important to have Indian control over sensitive assets such as airlines, air-side of airports etc," said Bose.