The government's undue support for state-owned carriers is hindering competition and discouraging foreign direct investment (FDI) in the aviation sector, an analyst with Angel Broking Ltd said.

Government-run refiner Indian Oil Corp Ltd (IOCL) has recently agreed to sell jet fuel to Air India at a discount of 8 per cent. The refiner reportedly agreed to offer the fuel to the carrier at a discount following discussions initiated by the civil aviation ministry. Air India, previously, received nearly $1.7 billion in government bailouts.

Many analysts see such discounts as undue support for the government-run carrier. They argue that such favours hurt competition in the aviation sector.

P. Phani Sekhar, a Mumbai- based analyst with Angel Broking, accused the government of making attempts to make sure that the civil aviation industry could not function in a competitive manner.

Speaking on the topic, Sekhar said, "Asking refiners to extend discount to Air India actually explains why despite opening 49 percent FDI in aviation, not many are interested in coming."

Air India has won a discount of Rs 5,300 ($98) per kiloliter on jet fuel from IOCL. The discounted fuel rates are applicable retrospectively from January 1.

Last year, the government pledged Rs 300 billion worth of bailout for Air India through 2020, in addition to backing its loans with sovereign guarantee. As of February 28, the state-owned carrier owed Rs 43.2 billion to fuel suppliers.