The Indian cabinet approved a proposal mandating the state-run airport operator to modernize 35 airports in second-tier cities within the next two years, the civil aviation minister said on Thursday.

The modernization process will cost the government between 70-80 billion rupees (USD$1.5 billion - USD$1.75 billion), Praful Patel told reporters after a cabinet meeting.

A decision to privatize Delhi and Mumbai airports earlier this year sparked mass strikes by airport workers who feared job cuts and who were supported by the ruling coalition's powerful communist allies.

"The development of 35 non-metro airports will be done by Airport Authority of India. Work will start within one year and will be completed by 2008/09," Patel said.

He said no final decision had been taken on modernizing or privatizing airports in two other major air hubs, Chennai and Kolkata.

The government has now decided to modernize the smaller airports using public funds after consulting allies. Airport employees are heavily unionized in most Indian cities.

The country's air travel industry is growing rapidly with a string of new airlines launched in recent years putting massive strain on existing airport infrastructure.

Delhi Airport has been taken over by a consortium led by the GMR group and including German airport operator Fraport and Eraman Malaysia.

The contract to revamp Mumbai - the busiest airport in the country - was won by a consortium led by GVK Industries and Airports Company of South Africa.

State-run Airports Authority of India now holds a minority stake in both the Delhi and Mumbai airports, which handled nearly half the estimated 50 million passengers who travelled by air in India last year but which fall well below international standards.

India, Asia's third-largest economy, has embarked on a drive to upgrade its creaking infrastructure of ports, roads and airports as it aims for double-digit GDP growth.

Estimates suggest an investment of USD$150 billion to USD$200 billion may be needed to upgrade infrastructure to the levels of leading Asian nations.