The Indian airline industry on Friday got a major relief with the government allowing it to raise capital through external borrowings worth USD one billion for a year, as it planned to allocate Rs 4,000 crore to ailing Air India.

In a bid to encourage the nascent maintenance, repair and overhaul (MRO) sector, it also proposed to allow full exemption from customs duty and countervailing duty to aircraft spares, tyres and testing equipment.

Introducing the 2012-13 budget, Finance Minister Pranab Mukherjee acknowledged that the airline industry was facing a financial crisis and the high operating costs of the sector was "largely attributable" to the jet fuel cost. "To reduce the cost of ATF, Government has permitted direct import of ATF by Indian carriers, as actual users."

In order to address the immediate financing concerns of the civil aviation sector suffering from a major capital scarcity, he proposed to permit "External Commercial Borrowings (ECBs) for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of USD one billion."

He also said that a proposal to allow foreign airlines to participate up to 49 percent equity of an airline company, operating scheduled or non-scheduled services, was "under active consideration of the government."

While the central plan outlay for Civil Aviation Ministry in 2012-13 is estimated at Rs 7,293 crore, a demand for plan allocation of Rs 4,000 crore to Air India in the next financial year has also been proposed in the budget.