Indian airlines including state-run Air India will now be allowed to use maximum permissible bilateral flying rights, allowing them to expand their overseas operations, the Aviation Ministry said on Tuesday.

India has been under-utilising its bilateral agreements under self-imposed restrictions because struggling Air India, the country's flag carrier, was unable to use the maximum limit as per a Reuters report.

"Under the new arrangement, code share operations will be encouraged," the ministry said in a statement.

The move is a big positive for all carriers, said Kapil Kaul, regional head of the Centre for Asia Pacific Aviation, a consulting firm.

Most Indian airlines are losing money as a result of high fuel costs, huge debts, cutthroat competition and a slowdown in the economy.