But before that, AirAsia first needs to receive approval from the Foreign Investment Promotion Board for the proposed tie-up.
The proposal was approved at a meeting of the Foreign Investment Promotion Board, Economic Affairs Secretary Arvind Mayaram told reporters.
In areas that the government wants to monitor more closely, prior approval is necessary from the Foreign Investment Promotion Board.
ECONOMIST: India relaxes some of the rules for outside investors
The meeting comes a few days before India's Foreign Investment Promotion Board, or FIPB, takes up the airline proposal for scrutiny.
Foreign investors continue to seek permission from the Foreign Investment Promotion Board, even though their plans are covered by the automatic approvals system.
India's Foreign Investment Promotion Board had approved IKEA's proposal in January.
India's Foreign Investment Promotion Board decided that Vodafone's acquisition of a controlling stake in Hutchison Essar , the country's fourth-biggest mobile-phone operator, did not breach Indian regulations on foreign investment.
After the approval was handed down by India's Foreign Investment Promotion Board, the economic affairs secretary said AirAsia would now have to get the necessary licences from the country's aviation regulators.
India's Foreign Investment Promotion Board on March 6 approved a plan of AirAsia to start a new airline in the country in a joint venture with Tata Sons Ltd. and another local company.
AirAsia in March received approval from India's Foreign Investment Promotion Board to start a budget carrier in India in a joint venture with Tata Sons Ltd. and a privately held Indian company, Telestra Tradeplace Pvt.
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