The Indian government has given formal permission to the state carrier, Air India to buy 68 aircraft from the US aviation company, Boeing.
Air travellers in India rose by 26.5 per cent in the last six months
The deal is estimated to cost $8bn (350bn rupees).
Of the 68 planes, 50 are long-haul jets for Air India and 18 are for its subsidiary, Air India Express, said Air India spokesman Jitender Bhargava.
The planes are expected to be delivered over a period of 10 years, beginning in 2006.
Air India has also plans to increase its seat capacity by 12% annually over the next 10 years.
The 18 aircraft for the budget carrier were added after Air India's board decided in April to award a $7bn contract to Boeing over its European rival manufacturer Airbus Industrie.
The state-run international carrier will buy eight B777-200 LR, 15 B777-300 ER and 27 B787 of Boeing's newly launched Dreamliner medium-capacity, long-range aircraft, Air India said in a statement earlier this year.
The carrier, which is wholly government owned, has been marginally profitable in the past three years, with net profit of 1.05 bn rupees ($24m) for the year ending March 2004.
India had earlier awarded a $2.2 bn contract to Airbus to buy 43 aircraft for Indian Airlines, another state-run airline.
India's state carriers had not acquired any planes in the last 15 years and these new aircraft will add to the ageing fleet and help it meet growing competition and passenger load in the coming years.
The number of air travellers in India rose by 26.5% in the six months to March with 18.52 million people boarding flights.
The number of passengers is expected to hit 50 million in the next five years as a slew of new private airlines enter the skies on the back of a booming economy.
India and China are two of the world's major aviation markets and the past few years have seen intense competition between Airbus and Boeing to win contracts in the world's two most populous countries.