This article is written by Akshita Gupta, from Symbiosis Law School Noida. This article discusses the investment opportunities in the stock market with a special focus on the oil sector and the Government considering Foreign Direct Investment policy tweaks to ease BPCL privatization.


In India, the oil and petroleum industry is one of the eight essential industries that contribute significantly to the country’s GDP. After the United States and China, India is the world’s third-largest oil consumer. Due to greater focus on the promotion of alternative energy sources such as wind, solar, and nuclear energy, it had already achieved 63 percent energy self-sufficiency by 2017. 

The stock market for oil and petroleum products has also begun to rise as a result of the government’s privatization drive, which has aroused the interest of more global energy giants in purchasing a majority stake in the Bharat Petroleum Corporation. This article seeks to present the most recent trends in India’s oil and petroleum industry, as well as its market size. Also, the legal framework governing investment opportunities in the stock market. 

Download Now

The Indian oil sector and the investment opportunity in Stock Market

Since India’s economic growth is strongly linked to its energy demand, the demand for oil and gas is expected to increase, making the industry attractive for investment. To meet the rising demand, the government has implemented several initiatives. It has authorized 100 percent FDI in numerous sectors, including natural gas, petroleum products, and refineries, to name a few. As evidenced by the presence of Reliance Industries Ltd (RIL) and Cairn India, it now attracts both domestic and global investment.

Market size

India has surpassed China as Asia’s second-largest refiner, with a capacity of 249.9 million metric tonnes (MMT) in May 2020, with private enterprises contributing 35.36 percent.

India is predicted to be a large contributor to non- Organisation for Economic Co-operation and Development (OECD) petroleum consumption worldwide.

Crude oil output is predicted to reach 30.5 million metric tonnes in 2020, with natural gas usage expected to reach 143.08 million metric tonnes by 2040. Similarly, crude oil imports will climb to 4.54 million barrels per day (mbpd) in 2020, up from 3.68 billion cubic meters last year, while LNG imports will be 33.68 billion cubic meters (bcm). Petroleum product usage has also increased by 4.5 percent to 213.69 MMT. The country’s petroleum product exports have also increased to USD 35.8 billion in 2020, up from USD 34.9 billion in 2019, with a volume increase of 65.7 MMT in 2020, up from 60.54 MMT in 2019. India, as one of the world’s major emitters of greenhouse gases, now has a 6.2 percent share of natural gas in its energy industry, which is predicted to rise to 15% by 2030. India, as the world’s second-largest biogas user, plans to build 5000 CBG facilities by 2023 under the SATAT initiative. The Ministry of Petroleum and Natural Gas of the Government of India has set an aim of reducing oil and gas import dependency by 10% by 2022, providing foreign investors with a wide range of chances to participate in projects worth US$ 300 billion. GAIL (Gas Authority of India Limited) controlled 71.61 percent of the country’s natural gas pipeline network as of March 2020. With 51.25 percent of the market share in March 2020, Indian Oil Corporation Limited was the market leader in the product pipeline network category. By the end of 2020, the energy trade between India and the United States has surpassed $10 billion.


Between April 2000 and December 2020, the petroleum and natural gas sector attracted US$ 7.91 billion in FDI, according to data supplied by the Department for Promotion of Industry and Internal Trade Policy (DPIIT). The following are some of the most significant oil and gas investments and developments:

  • India’s natural gas production grew by 22.7 percent year on year in April 2021, according to government data, as Reliance Industries Ltd. and its partner, BP plc, expanded production in the KG-D6 block on the east coast.
  • To accommodate increased demand, Petronet LNG announced plans to raise the capacity of its Dahej terminal by 29 percent to 22.5 million tonnes per annum (mtpa) in February 2021.
  • Bharat Petroleum and Hindustan Petroleum, two of India’s largest oil dealers, have announced plans to expand their rural locations in 2021.
  • ONGC declared in February 2021 that it would boost natural gas output from a KG basin block to 2.5-3 million standard cubic meters per day by May 2021.
  • The government launched key oil and gas projects in Assam in February 2021, including the INDMAX Unit at Indian Oil’s Bongaigaon Refinery, Oil India Limited’s secondary tank farm at Madhuban, Dibrugarh, and a “Gas Compressor Station” at Hebeda Village, Makum, and Tinsukia, which are all remote from Dhemaji.
  • The Ramanathapuram – Thoothukudi natural gas pipeline and the Gasoline Desulphurization Unit at Chennai Petroleum Corporation Limited, Manali, were both launched in February 2021 by the government. Greenstat Hydrogen India Pvt. Ltd. and IndianOil Corp. Ltd. inked a ‘statement of intent ’ in February 2021 to build a center of excellence for the hydrogen value chain and other associated technologies such as hydrogen storage, fuel cells, and so on. 
  • According to Mr. Dharmendra Pradhan, Minister of Petroleum and Natural Gas of India, foreign investors will be able to engage in projects worth US$ 300 billion in India as the government aims to reduce its reliance on oil imports by 10% by 2022.

Top companies in the oil sector of India

Reliance Industries Limited

RIL’s plant at Jamnagar, Gujarat, has a refining capacity of 1.24 million barrels per day, making it the world’s largest refining hub. Its oil and gas segment revenue was US$ 455.53 million until June 2020. Its Petroleum sector operates a nationwide network of over 1300 gasoline retail locations. It is the first firm in India to achieve a market valuation of more than Rs. 13.75 lakh crores.

Oil and Natural Gas Corporation (ONGC)

The country’s largest crude oil and natural gas corporation, ONGC, has agreed to a Memorandum of Understanding (MoU) with NTPC to form a renewable energy joint venture in India. It has a market capitalization of almost Rs. 1.04 lakh crore.

As part of its Energy Strategy 2040, ONGC Videsh, a subsidiary of ONGC, India’s largest international oil and gas company, has made new oil finds in Colombia and Brazil. ExxonMobil and the firm also inked an MoU for offshore blocks.

Petronet LNG Limited 

This company, which has a market worth of Rs. 38,227.5 crore, built the country’s first LNG receiving and regasification plants. The company expects to form LNG station agreements with gasoline and gas suppliers for long-haul trucks and buses. It plans to build 1,000 LNG stations across the country over time, to have 300 LNG stations operational by 2023.

Indian Oil Corporation Limited (IOCL)

Indian Oil Corporation Limited (IOCL) is a public company based in India.

With approximately 47,800 client touchpoints, IOCL focuses on the safety of India’s energy industry and self-sufficiency in refining and marketing petroleum products. It has a market capitalization of Rs. 1.71 crore and is the largest contributor of levies and taxes to the national exchequer. It began supplying the world’s cleanest gasoline and diesel across the country in March 2020, and it plans to invest Rs. 500 crores in Karnataka.

Oil India Limited 

Oil India Limited is a public sector firm that is the world’s second-largest in hydrocarbon exploration and production. Its stock is on the rise. Despite blowouts at one of its locations, market experts expect that they will be able to recover and that prices will progressively improve. The market capitalization is Rs 10,291.01 crore.

The legal framework governing investment opportunity in the stock market 

India is the world’s fifth-largest economy and one of the few economies in the world that has a strong potential for growth and profit in all areas. The significant skilled workforce is one aspect that provides a good return on foreign investors’ capital. To be successful, foreign investors must analyze and calculate the potential and limitations that the Indian markets bring.

Investors must devise a good strategy and conduct considerable research. If foreign corporations are looking for short-term gains, they may be disappointed to learn that they will not be successful; nevertheless, long-term gains can be expected for an investor who understands the Indian market before investing. Investors can reap the benefits of their investments if these criteria are kept in mind and taken care of.

Government policies concerning foreign investment in India

The Indian government has made several efforts to encourage international investment. The Foreign Exchange Management Act (FEMA) of 1999 governs most of the foreign investments in India. The Reserve Bank of India released the Foreign Exchange Management Regulations 2000 and after the Foreign Exchange Management (Transfer or Issue of Security by Person Resident Outside India) Regulations 2017 under FEMA to govern foreign investments. Furthermore, the Department of Promotion of Industry and Internal Trade established a framework that integrated the sectoral rules and conditions that foreign investors operating in Indian firms must meet.

The FEMA, as well as notifications and circulars issued from time to time by the Central Government and RBI relative to foreign investments, are the primary laws that control and regulate acquisitions and foreign investment in India.

In India, there are various types of foreign investment:

Foreign Direct Investment (FDI)

Following our independence, policymakers devised FDI policies in response to the necessity to bring in advanced technology for development and collect foreign exchange resources.

FDI is an investment made by a company or individual that is a substance or entity in one country and has control over economic interests in another country. FDI can take the form of starting a firm, entering into joint ventures, mergers, and acquisitions, opening new offices, and so on. It is prohibited in the following industries: betting and gambling, lottery business, Nidhi Company, housing and real estate business, chit fund business, transferable development rights, retail trading, plantations, atomic energy, and agriculture.

The following changes were made to the FDI policy: 

  • Any non-resident entity from Pakistan, China, Nepal, Myanmar, Bhutan, and Afghanistan can invest in India only after obtaining government approval
  • The beneficial owner of an investment made in India must be based in or a citizen of these countries.
  • These limits are applied in the case of an indirect or direct transfer of ownership of any potential or current FDI in a company in the country, resulting in beneficial ownership that is subject to the restrictions.
  • Investments made before the new policy took effect are grandfathered.

Foreign Portfolio Investment

Foreign Portfolio Investment (FPI) is an investment in Indian securities by foreigners and non-residents, which includes shares, government securities, corporate securities, convertible securities, framework securities, and so on. The goal is to assure India a controlling interest at lower risk or investment than FDI, with flexibility for entry and leave.

In light of the coronavirus, SEBI has taken steps to protect foreign investors and ease the load on their firms’ operations by easing the procedures for FPIs to renew their licenses.

Foreign Investment

An investor’s investment in foreign markets is referred to as an FII. Companies must only register with the stock exchange to make investments under the FII concept. A mutual fund, a pension fund, an insurance or reinsurance firm, and an investment trust that intends to invest in India are all included. The overall investment limit under FII is 24 percent of the Indian company’s paid-up capital. These investments are significant in our country because they are net sellers, increasing the breadth and depth of Indian markets as well as providing a substantial source of speculation. The distinctions between FPI and FII are primarily in the types of financial specialists, and so the phrases FPI and FII are used interchangeably.

Amendments to the FPI’s policy and rules:

  • Instead of the three current categories, the FPIs have been reclassified into two.
  • The registration process for FPIs has been simplified, with registration timelines being shortened.
  • Due to the modification of broad-based eligibility criteria for foreign institutional investors, the FPI route to enterprises that do not satisfy the threshold of 20 investors has been liberalized.
  • Central banks that are not members of the Bank for International Settlements are now eligible to register as FPIs.
  • Foreign Portfolios are entitled to undertake off-market transfers of assets that have been suspended to a foreign or domestic investor, dispose of such securities, and obtain liquidity through firms established in compliance with the International Financial Service Centre.
  • The requirements of the FPI apply to the floating of offshore funds by Indian mutual funds to avoid regulatory arbitrage and the rationalization of the regulatory environment. 

Since overseas investments face greater dangers and risks than domestic ones, current foreign investment law has established an international minimum standard of treatment. These criteria were created with the primary objective of safeguarding foreign investors in host nations.

Though the content of the international minimum standard is difficult to discern, it embodies the law relating to compensation for expropriation of foreign property or investment, as well as dispute resolution or reconciliation of such issues through international tribunals. The minimum level was recognized as a civilized justice or civilization standard.

Foreign investment in India

The following are the ways by which foreign investments can be made:

Automatic Route

According to Regulation 16 of the FEMA Regulations (2017), foreign investment in India is permitted without prior authorization from the Government of India or the Reserve Bank of India (RBI) in all activities or sectors.

Government Route

Foreign investment in activities not covered by the automatic route requires prior authorization from the government via the Government route. The Foreign Investment Facilitation Portal can be used to submit an application to the government for approval. The Ministry of Commerce Department of Industrial Policy and Promotion is in charge of this portal.

What is a Foreign Investment Facilitation Portal and how does it work

The Foreign Investment Facilitation Portal is the Finance Ministry’s online single-window portal for facilitating foreign investment in India. The Department of Industrial Policy and Promotion Board is in charge of the portal. Its functions are as follows:

  • To increase transparency in the process of foreign investment approval;
  • To increase communication, eliminate paperwork, and keep investors informed via SMS/e-mail;
  • To post-approval letters to the portal in a standard format for the convenience of investors;
  • To communicate guidelines and press releases about the FDI policy to the investors.

The FIFP replaced the former Foreign Investment Promotion Board (FIPB) to promote transparency and ease the clearance process for FDI projects, allowing the country’s FDI inflow to increase. Since the elimination of the FIPB, various government departments have been given the authority to review FDI proposals in collaboration with the DIPP, which will also create standard operating procedures for processing applications.

Sectoral limitations on foreign investment

Foreign investment is permitted in the areas or activities listed in Rule 16 of the FEMA Regulations, 2017 up to the limit stated against each sector or activity, subject to applicable laws and regulations. The restriction indicated against each sector is the sectoral cap for the sectors or activities. The total amount of foreign investment shall not exceed the limit set by the sector. In sectors not included in Regulation 16 of the FEMA Regulations, 2017 and not forbidden under Regulation 15 of the FEMA Regulations, 2017, up to 100 percent foreign investment is permissible via the automatic method, subject to applicable laws and regulations. However, this condition does not apply to activities in financial services.

What are the investment options for a person living outside India who wants to invest in India

Entry routes, sectoral caps, and investment limits will apply to any investment made by a person residing outside of India. A person residing outside of India can invest in the manner described below:

  • A person living outside of India can subscribe to, buy, or sell capital instruments issued by an Indian firm, subject to the terms and conditions outlined in Schedule 1 of the FDI regulation. It should be emphasized, however, that a citizen of Bangladesh or Pakistan, or an organization formed in these countries, cannot purchase capital instruments without first obtaining official approval.
  • A foreign portfolio investor can buy or sell capital instruments of a listed firm on a recognized stock market in India, subject to the terms and conditions of Schedule 2 of the FDI legislation.
  • A Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) may sell or buy capital instruments of a listed firm on a recognized stock exchange in India on a repatriation basis, subject to the terms and circumstances set down in Schedule 3 of the FDI rule.
  • A Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) may sell or buy capital instruments of an Indian company on a non-repatriation basis, or buy or sell units or contribute to the capital of an LLP, a firm, or a proprietary concern, subject to the terms and conditions set out in Schedule 4 of the FDI regulation. 
  • A person residing outside of India who has been granted permission to do so by the Reserve Bank after consultation with the Central Government may sell or buy securities other than capital instruments, subject to the terms and conditions outlined in Schedule 5 of the FDI rule.
  • A person residing outside of India who is not a citizen of Pakistan or Bangladesh or an entity incorporated in these countries may invest in an LLP by making a capital contribution or purchasing or transferring profit shares, subject to the terms and conditions outlined in Schedule 6 of the FDI regulation.
  • A foreign venture capital investor can invest in the manner and under the terms and conditions outlined in Schedule 7 of the FDI regulations.
  • A person resident outside of India who is not a citizen of Pakistan or Bangladesh, or a business incorporated in these countries, may engage in investment vehicle units subject to the terms and conditions outlined in Schedule 8 of the FDI law.
  • A person living outside of India can invest in Depository receipts issued by foreign depositories against qualifying securities, subject to the terms and restrictions outlined in Schedule 9 of the FDI rule.
  • A foreign portfolio investor, NRI, or OCI can buy, hold, and sell Indian Depository Receipts issued in the Indian Capital Market, subject to the terms and conditions outlined in Schedule 10 of the FDI regulations.

Purchase through a rights or bonus issue

A person residing outside of India who has made an investment in an Indian company is permitted to invest in the firm’s capital instruments, subject to the following conditions:

  1. The Indian company’s offer should adhere to the provisions of the Companies Act of 2013.
  2. The company’s sectoral cap should not be breached as a result of the problem.
  3. The shareholding on which the rights issue or bonus issue is based must have been acquired and held by FEMA Regulations, 2017.
  4. Other than share warrants, capital instruments acquired as a bonus issue or rights issue by a person located outside India are subject to the same requirements as the underlying holding against which the rights issue or bonus issue was issued.
  5. If the company is a publicly-traded Indian corporation, the rights awarded to a person residing outside of India will be at the company’s discretion.
  6. If it is an unlisted Indian company, the rights issued to a person residing outside of India must not be at a lower price than those offered to Indian residents.
  7. An investment made through a rights or bonus issue is subject to the terms and conditions in effect at the time of the issue.
  8. The consideration amount may be paid from money kept in an NRE/FCNR (B) account maintained by the Foreign Exchange Management (Deposit) Regulations (2016) or as an inbound remittance from outside through banking channels.
  9. The consideration amount can also be paid by debit to the NRO account maintained by the Foreign Exchange Management (Deposit) Regulations, 2016 if the original investment was made on a non-repatriation basis.

The current scenario

The following are some of the significant steps taken by the Indian government to boost the oil and gas sector:

  1. Prime Minister Narendra Modi said in February 2021 that the Indian government aims to invest Rs. 7.5 trillion (US$ 102.49 billion) in oil and gas infrastructure over the next five years.
  2. The government provided funding worth Rs. 12,480 crore (US$ 1.71 billion) for LPG (liquefied petroleum gas) direct benefit transfer and Rs. 1,078 crore (US$ 147.31 million) for feedstock subsidy to BCPL/Assam Gas Cracker Complex in the Union Budget 2021.
  3. The Finance Minister declared in the Union Budget 2021 that the Pradhan Mantri Ujjwala Yojana (PMUY) scheme would supply 1 million new LPG connections.
  4. The Ministry of Petroleum and Natural Gas released a draught LNG policy that seeks to boost the country’s LNG regasification capacity from 42.5 million tonnes per annum (mtpa) to 70 mtpa by 2030 and 100 mtpa by 2040.
  5. On October 11, 2019, the Ministry of Petroleum and Natural Gas released a long-term ‘Ethanol Procurement Policy’ as part of the ‘Ethanol Blended Petrol (EBP) Programme,’ which covers ethanol procurement modalities, proposed mechanisms for long-term procurement contracts, pricing methodology, and other topics.
  6. The Ministry of Petroleum and Natural Gas has permitted SC/ST enterprises to provide bulk LPG transportation under the Union Budget 2019-20, Indian Scheme ‘Kayakave Kailasa.’ Bharat Petroleum, Hindustan Petroleum, and Indian Oil Corporation, all state-owned energy companies, aim to spend $20 billion on refinery expansions by 2022.
  7. By 2023, the government plans to build 5,000 compressed biogas (CBG) facilities.
  8. By 2022, the government plans to invest US$ 2.86 billion in upstream oil and gas production, doubling natural gas production to 60 billion cubic meters and drilling more than 120 exploratory wells.

Government considering FDI policy tweak to ease BPCL privatization

The government is considering changing the present foreign direct investment (FDI) policy to allow foreign investors to buy a majority interest in Bharat Petroleum Corp Ltd, India’s second-largest oil refiner. The government is selling its full 52.98 percent ownership in BPCL in order to privatize the company. Vedanta, a mining-to-oil conglomerate, had submitted an expression of interest (EoI) to buy the government’s 52.98 percent stake in BPCL as part of the privatization process. The other two bids are thought to be worldwide funds, with Apollo Global Management being one of them.

Only 49% FDI is now permitted in petroleum refining via the automatic route by public sector enterprises (PSUs), with no disinvestment or dilution of domestic ownership in existing PSUs. A foreign player would be unable to purchase more than a 49% share in BPCL under this rule.

DIPAM has proposed amending the existing FDI policy to allow 100 percent foreign direct investment in a central public sector company (CPSE) in the petroleum and natural gas sector, according to sources.

The Department for Promotion of Industry and Internal Trade (DPIIT), on the other hand, has recommended a special provision for this case.

They stated that a proposed adjustment to the FDI policy is being considered to allow investment in BPCL as part of the disinvestment process. 


In order to offer improved prospects for foreign investment in India, the government has recently loosened some current rules and implemented new legislation in some cases. Many developments have occurred since India’s economy was opened to foreign investors in 1991, with the goal of attracting foreign investment. Since the liberalization, all administrations have begun to enact policies that have increased the attractiveness of the Indian economy to international investment.


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.


Please enter your comment!
Please enter your name here