India shelves Air India sale plan after failing to attract buyers - reports

, (Reuters) - India has shelved its sale of Air India after failing to attract buyers, local media quoted a government minister as saying - a decision that could exacerbate the carrier's financial woes and representing a setback for government efforts to cut debt.

Civil Aviation Minister Suresh Prabhu said plans to privatise the carrier have been dropped for now due to factors such as the looming election and high oil prices, according to Times of India which cited news agency PTI.

The decision to call off the sale is a highly disappointing reversal of the government's earlier commitment to privatising the national carrier, consultancy CAPA India said.

"Under continued government ownership, with no clear roadmap, Air India is likely to see its domestic and international market shares decline over time to a point where the carrier is no longer relevant," it said.

The money-losing carrier, which employs some 27,000 staff, said this month it was seeking a short-term loan of 10 billion rupees ($148 million) so it can continue day-to-day operations.

CAPA India estimated the carrier would make losses of $1.5 to $2 billion over the next two years alone, adding it represented an unnecessary drain on taxpayer funds in an industry that is well-served by private operators.

Selling the state carrier was key to Prime Minister Narendra Modi's plans to help keep the fiscal deficit at 3.3 percent of GDP, a goal already under pressure from giveaways to farmers and other welfare benefits ahead of a national election in 2019.

The sale of a stake in Coal India is now being considered, Bloomberg reported on Monday.

The government in March finalised plans to divest a majority stake in Air India and offload about $5.1 billion of its debt, but prospective buyers stayed away, with some citing onerous terms as a reason for their lack of interest.

Air India and the Indian government could not be reached for comment outside business hours.

Air India has been losing domestic market share to rapidly expanding lower-cost operators like InterGlobe Aviation Ltd's IndiGo and SpiceJet Ltd that are now looking to expand their international routes.

(Reporting by Arunima Banerjee in Bengaluru and Jamie Freed in Singapore; Editing by Edwina Gibbs)