Etihad Airways won Indian government backing to invest in Jet Airways (India) Ltd., paving the way for the first share sale by a carrier in the Asian country to a foreign airline since restrictions were eased.

The approval will result in foreign investment of 20.6 billion rupees ($332 million), the government said in a statement after a cabinet decision in New Delhi yesterday. India modified airline ownership rules last year.

Abu Dhabi-based Etihad agreed in April to buy a 24 percent stake in India’s biggest publicly traded carrier as it seeks access to a market where passengers are forecast to triple to 452 million by 2020. Rising travel has prompted both Singapore Airlines Ltd. and AirAsia Bhd. to tie up with Mumbai-based Tata Group this year to set up ventures in the South Asian nation.

“Jet Airways would be one of the most important investments for Etihad,” JLS Consulting Director John Strickland said in an interview. “There is a lot of natural traffic flow from the Indian market.”

For Jet Airways, the injection of Etihad capital and management expertise should improve its competitiveness in the difficult Indian market, Strickland said.

Shares of Jet rose 4.4 percent to 386.60 rupees at the close of Mumbai trading before the announcement. The stock has declined 31 percent this year, compared with a 2.5 percent gain for the benchmark S&P BSE Sensex Index.

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Etihad, which isn’t traded, will purchase 27.26 million Jet shares. In April, the Gulf carrier said the deal will lift its commitment to Jet to $600 million, including the purchase of three pairs of slots at London Heathrow airport for $70 million in February and a $150 million investment in a majority stake in the Jet Privilege frequent-flier program.

The agreement will help Jet raise funds to pay for fleet expansion and pare debt after six years of losses caused by a price war and high fuel costs. India’s Foreign Investment Promotion Board approved the deal in July.

Etihad may also look at its stake in Jet as a way to overcome Indian hurdles on additional traffic rights to the country, Strickland said. Indian government efforts to protect domestic carriers by limiting the routes foreign operators can serve has been an impediment to fast-growing Gulf airlines.

An Etihad spokesman declined to comment yesterday.

Etihad also has holdings in Air Berlin Plc, Virgin Australia Holdings Ltd., Aer Lingus Group Plc, Serbia’s Jat Airways and Air Seychelles Ltd. The state-owned airline has invested in smaller operators to help feed long-haul flights and turn its home base into a hub for intercontinental travel.

–With assistance from Vipin V. Nair in Mumbai and Deena Kamel Yousef in Dubai. Editors: Subramaniam Sharma, Christopher Jasper

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net