While all the carriers in India jumped on the opportunity to charge for seat selection to shore up their revenues, Air India seems to be opting out of the game, at least for domestic sectors.
When fare unbundling was announced in India, all the carriers rushed to charge for seat selection. Indigo went ahead and wanted to charge you for every seat, including the middle seat. Then, the regulator realised its mistake, and limited the seats on a plane, which could be charged as special seats to 25% of the cabin.
As per the news, this is their logic:
The aviation regulator has directed that airlines can offer only up to 25% of seats for pre-booking. So at most, we are looking at raising Rs 5,000 from a flight through this route. It makes more sense to sell one more seat for this price than charge for pre-booking. We are unlikely to have seat selection charges for domestic flights and may only introduce the same for international ones.
Although its flawed, its a pro-consumer move anyways, which won’t help them much. Most people do not know that Air India has offered the facility to select seats without charge for a very long time now, using their website, and if you’re stupid like me, you could still get it wrong. 
I don’t see why people would flock to AI in droves because they want to save some money on seat selection. Most of India anyways won’t pay for advance seat selection, unless there is a specific reason such as medical considerations.
Also, the good news is that SpiceJet chose to retain the free 20 Kg check-in baggage limit, unlike all the other domestic carriers who chose to bring it down to 15 Kgs.
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I’m surprised the government of India hasn’t required it to explore all forms of ancillary revenue given their Equity stake. At some point, one would hope they’d want a dividend. If the Indian competition is charging for it, I’m sure AI will soon enough.