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The government on Thursday permitted 100 per cent foreign investment under the automatic route in oil and gas PSUs which have received in-principle approval for strategic divestment.
The move would facilitate privatisation of India's second biggest oil refiner Bharat Petroleum Corp Ltd (BPCL).
The government is privatising BPCL and selling its entire 52.98 per cent stake in the company.
According to a press note of the Department for Promotion of Industry and Internal Trade (DPIIT), a new clause has been added to the FDI policy for oil and natural gas sector.
"Foreign investment up to 100 per cent under the automatic route is allowed in case an 'in-principle' approval for strategic disinvestment of a PSU has been granted by the government," it said.
The decision regarding this was taken by the Union Cabinet last week.
Two out of the three companies that have put in an initial expression of interest (EoI) for buying out the government's entire 52.98 per cent stake in BPCL are foreign entities.
The FDI limit in PSU-promoted oil refineries will continue at 49 per cent -- a limit that was set in March 2008.
As of now, the government is selling the stake in only BPCL. Indian Oil Corporation (IOC), the nation's largest, is the only other oil refining and marketing company under direct government control.
Hindustan Petroleum Corporation Ltd (HPCL) is now a subsidiary of state-owned Oil and Natural Gas Corporation (ONGC).
The government had in March 2008 raised the FDI limit in oil refineries promoted by public sector companies from 26 per cent to 49 per cent.
The firm acquiring the government's 52.98 per cent stake in BPCL will also have to make an open offer to buy an additional 26 per cent stake from other stakeholders at the same price, as per the takeover rules.
Mining-to-oil conglomerate Vedanta and US-based private equity firms Apollo Global and I Squared Capital's arm Think Gas are in the race to buy the government's stake in BPCL.