The number of foreign direct investment projects approved in the petroleum sector has dwindled in the last six years.
The number of FDI approvals dropped to 24 at an investment of Rs 5,899.61 crore (Rs 58.99 billion) in 2001-02, against 41 approvals at an investment of Rs 5,905.25 crore (Rs 59.05 billion) in 1997-98.
The opening up of the petroleum sector and dismantling of the administered pricing mechanism also did not help in this regard.
During April-December 2002, the first year of decontrol in the petroleum sector, FDI approvals touched a low of 20, entailing an investment of just Rs 258.24 crore (Rs 2.58 billion).
The main reason for few foreign investment proposals in the exploration sector was the perception that prospects of hydrocarbon in India were low.
This was aggravated by an absence of reliable data on the exploration blocks offered by the country before the new exploration licensing policy was implemented.
During this period, none of the foreign companies that invested in exploration activity here could strike hydrocarbons.
It was only when the country updated its data collection facilities and undertook vigorous seismic surveys that some interest was revived in its exploration sector.
The other factor for the poor flow of foreign investment was the lack of confidence among investors that India would deregulate the oil sector on time.
Though the government had announced a phased programme for the dismantling of the administered pricing mechanism in the oil sector and rationalisation of taxes, duties and removal of subsidies during 1998-2002, considering the volatility in international prices and India's growing dependence on imports, foreign investors did not feel that the government would stick to its deadline for decontrol.
Moreover, prospective investors in the refining sector stayed away from India since volatile international prices had exposed the domestic refineries to the risks and uncertainties associated with the international oil market.
The other major reason for low foreign investment in the oil sector was the slowdown in economic growth, particularly in Southeast Asia.
This put a downward pressure on the demand for petroleum products, resulting in a surplus refining capacity globally.