The higher seat quota will allow the airlines from the two sides to operate more flights.
With alleged role of middleman in negotiations for higher seat quota with the Gulf countries during the UPA-II government, the new government had almost put on hold the demand for further raising the seat entitlements.
Official sources indicated that the Indian side may not immediately agree for raising quota with the UAE that would benefit foreign carriers like Emirates and FlyDubai.
Among key demands, the UAE may press for designating Air Arabia as carrier from Ras Al Khaimah, one of the Emirates, and use the bilateral seat entitlements. RAK Airways, the official airline of Ras Al Khaimah, shut down in 2014 and Air Arabia is eyeing the unutilised quota. The designated airlines from India and Ras Al Khaimah are entitled to operate 1,428 seats per week.
The Ministry is, however, unlikely to agree to this given that in response to a Parliament question it had earlier said that the proposal is beyond the scope of existing bilateral air service agreement (ASA).
Article 3 of the ASA between India and UAE gives rights to both the parties to designate airlines.
"...the entitlement of each Emirate is specifically meant for designated airlines of that Emirate only and therefore Air Arabia which is designated airline of Sharjah can not utilise the entitlements of UAE (Ras Al Khaimah) at the same time," the then Civil Aviation Minister Jayant Sinha had said in Parliament.
In what suggests the government has now decided to remove virtual freeze on negotiations for more seat quota with the Gulf and Middle East countries, India last week agreed to enhance bilateral quota with Saudi Arabia by about 10,000 weekly seats.
Sources said that the move would help Saudi Arabia diversify its economy and boost tourism sector. Given that Saudi Arabia now wants to reduce its dependence on oil and focus on tourism as a major growth driver, the higher seat quota will help its airline get passenger feed from India.
The designated airlines of India and Saudi Arabia are currently entitled to operate 28,000 seats weekly from each side.
It has been reliably learnt that sale-bound national carrier opposed the government move but its suggestion was rejected.
With disinvestment process of Air India progressing fast, an industry insider said that the deal will help Air India's rivals and hence it would impact the valuation of the national carrier as and when it goes under the hammer.
The decision to raise seat quota with Saudi Arabia has not been made public so far and is likely to be announced during Prime Minister Narendra Modi's visit to the oil-rich country.
As the routes between India and Gulf & Middle East countries are considered lucrative, the increase in bilateral seat quota has always been under spotlight.
In the previous UPA-II government, India had in 2013 agreed to enhance bilateral entitlements to Abu Dhabi by nearly four times from 13,330 seats to 50,000 seats per week from each side. With the allegations that the move was aimed at helping Jet Airways-Etihad deal, it came under scrutiny. The matter remains sub-judice in the court.
BJP MP Subramanian Swamy had challenged that the decision claiming that it will help Etihad and Indian carriers stood to lose.
Dubai has also been lobbying for quite some time to raise the bilateral seat quota but could not convince India and the issue remained on hold.
As per the National Civil Aviation Policy (NCAP), India goes for 'Open Sky' with foreign countries in case they are located beyond 5,000 km from Delhi. For countries within 5,000 kms, it has decided to agree for raising the entitlements only after designated Indian carriers have utilized 80 per cent of the seat quota.
Taking advantage of cheaper fuel, UAE carriers Emirates, Etihad and Fly Dubai have grown in size and scale over the years. Higher seat entitlements allow them to take passengers from India to their hubs and then feed their long-haul flights to North America and Europe.
Indian carriers have largely struggled given their poor financial health and have failed to match the seat utilisation of the UAE biggies.