New Delhi, Mar 10 (IANS): Malaysian budget carrier AirAsia's entry into the Indian sky with a new airline in partnership with the Tata Group, the country's premier business house, will help the domestic aviation industry grow and get better deals to passengers, say sector watchers.

"It is a very positive move for the industry and the passengers. As more players would help in development of the industry which is at a very nascent stage," Ankur Bhatia, chairman, Confederation of Indian Industry's (CII) national committee on civil aviation, and executive director, Bird Group, told IANS.

The joint venture would represent the first foreign company to try to capture the rising demand in India's aviation sector. Currently, there are six scheduled domestic airlines in the country -- Air India, Jet Airways, Jet Lite, SpiceJet, IndiGo and GoAir. IndiGo is the leading passenger carrier with 27.3 percent of market share as of November last year, followed by Air India at 20.7 percent and SpiceJet at 19.5 percent.

"For passengers, a new airline will mean better fares and services. This is not the first time that a new airline will start and the existing airlines would know how to fend for themselves," Bhatia said.

AirAsia last week received regulatory approvals from the Foreign Investment Promotion Board (FIPB), for investing around Rs.80 crore in the venture and hold up to 49 percent stake.

The company plans to start an airline from Chennai which will focus on providing connectivity to smaller cities by the end of 2013.

The new airline venture will be in partnership with the Tata Group and Arun Bhatia-promoted Telestra Tradeplace.

Sectoral watchers say that foreign investments in forming new airlines will not impact the chances of existing airlines in attracting foreign capital.

"If the stakes are attractive in existing airlines and an opportunity exists, foreign carriers may seek to buy," said Rajiv Chib, associate director, PricewaterhouseCoopers.

The experts also say that there will not be any real threat to the existing airlines by AirAsia's entry as the new airline will focus on tier-II-III cities.

"In the short run, there is no real threat to existing players as AirAsia plans to start with a small fleet. However, other Indian passenger carriers would sooner or later need to focus on the emerging traffic from tier-II, tier-III cities," Sharan Lillaney, aviation analyst at broking firm Angel Broking, told IANS.

Lillaney added that the FIPB approval to AirAsia has cleared the air on the government's policy on inviting foreign capital into the sector.

"The FIPB nod will make it easier for others who are going to apply for fresh investments, as norms are clear now," she said.