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100% FDI Now Open for Oil & Gas Exploration, Refining & City Gas Networks: What NRI Investors Need to Know

India has liberalized foreign direct investment rules for petroleum, natural gas, and energy infrastructure, allowing NRIs to invest up to 100% in upstream exploration, non-PSU refining, LNG facilities, and city gas distribution via the automatic route—no government approval needed. For PSU refining, the cap remains 49% under the government approval route. These changes, effective from 2021 and reinforced through 2025, align with India's energy transition goals including E20 ethanol blending and compressed biogas promotion.

Source: India Petroleum, Ethanol & Energy — NRI Investment

100% FDI Now Open for Oil & Gas Exploration, Refining & City Gas Networks: What NRI Investors Need to Know

What Changed in India's Petroleum & Natural Gas FDI Policy

The Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce & Industry has significantly opened India's energy sector to foreign investment. The key change came through Press Note No. 3 (2021 Series), which amended the Consolidated FDI Policy Circular of 2020. This policy now allows 100% foreign direct investment under the automatic route for several petroleum and natural gas activities—meaning you do not need government approval to invest.

Who Can Invest: NRIs and the FEMA Framework

As an NRI, you are classified as a Person Resident Outside India (PROI) under India's Foreign Exchange Management Act (FEMA). This classification gives you the right to invest in Indian companies and projects, subject to specific rules.

The automatic route means you can invest up to 100% in eligible petroleum and natural gas activities without seeking prior approval from the government. You simply report your investment to the Reserve Bank of India (RBI) using Form FC-GPR after the money arrives in India. This streamlined process makes it faster and easier to deploy capital compared to the government approval route, which requires ministry sign-off and takes longer.

Where You Can Invest: The 100% Automatic Route

Under the new policy, you can invest 100% in the following activities without government approval:

Upstream Exploration & Production

  • Exploration activities for oil and natural gas fields
  • This opens doors to joint ventures with companies like ONGC (Oil and Natural Gas Corporation) on greenfield projects
  • You cannot dilute or take control of existing PSU stakes, but new exploration blocks are fair game
Infrastructure for Marketing & Distribution
  • Infrastructure related to marketing of petroleum products and natural gas
  • City gas distribution (CGD) networks—the pipelines and retail outlets that deliver compressed natural gas (CNG) and piped cooking gas to homes and vehicles
  • Market study and formulation of strategy for marketing petroleum and gas products
Refining (Non-PSU)
  • Setting up new refineries that do not involve Public Sector Undertakings (PSUs)
  • This means you can invest in private refining ventures without caps
LNG Infrastructure
  • Liquefied natural gas (LNG) infrastructure facilities, including regasification terminals and storage

The PSU Exception: 49% Cap with Government Approval

If you want to invest in petroleum refining by PSUs (such as Indian Oil Corporation, Bharat Petroleum, or Hindustan Petroleum) without dilution or reduction of domestic equity stakes, the cap is 49% and you must go through the government approval route. This means you need prior approval from the relevant ministry before investing. The government approval route protects India's strategic control over these critical energy assets while still allowing meaningful foreign participation.

How to Invest: The Mechanics

For Automatic Route Investments (100% allowed)

1. You remit funds from your overseas bank account to an Indian company's bank account 2. The Indian company files Form FC-GPR with the RBI within 30 days of receiving the funds 3. You retain the right to repatriate profits and dividends after paying applicable Indian income tax 4. No prior approval needed—the investment is legal from day one

For Government Approval Route (PSU refining at 49%)

1. You apply through the Foreign Investment Facilitation Portal (FIFP) or directly to the relevant ministry 2. The government reviews your application and issues approval 3. Only after approval do you remit funds 4. You then file Form FC-GPR with the RBI 5. Repatriation of profits is allowed post-tax

Tax and Repatriation Rules You Must Know

When you invest in Indian petroleum and natural gas projects, remember these points:

  • Profit repatriation is allowed after you pay Indian income tax on those profits
  • Dividend distribution tax (if applicable under the company structure) must be paid before you repatriate
  • Form FC-GPR is your proof of compliance—keep it safe for RBI and income tax records
  • Pricing guidelines apply to cross-border transactions; ensure your investment terms are at arm's length to avoid transfer pricing scrutiny
  • Land use norms must be followed; petroleum and gas projects often require specific zoning and environmental clearances

Prohibited Sectors and Restrictions

You cannot invest in atomic energy or other prohibited sectors. The petroleum and natural gas policy does not change these restrictions. Additionally, if you are investing through a proprietorship or partnership structure and want repatriation benefits, you must obtain prior permission from the RBI in consultation with the Government of India.

Alignment with India's Energy Transition Goals

These policy changes support India's broader energy strategy for 2025 and beyond:

E20 Ethanol Blending India is promoting 20% ethanol blending in petrol (E20 fuel). NRI investments in ethanol production facilities and blending infrastructure now have a clearer path, as the policy encourages foreign participation in petroleum product marketing and infrastructure.

Compressed Biogas (CBG) India is pushing CBG as a renewable alternative to natural gas. The liberalized FDI rules for gas infrastructure and distribution networks benefit CBG projects, allowing NRIs to invest in collection, compression, and distribution of biogas.

City Gas Distribution Networks CGD networks are expanding rapidly across India. With 100% automatic FDI allowed, NRIs can invest in or partner with CGD companies to build pipelines and retail outlets in tier-2 and tier-3 cities.

Upstream Exploration India regularly auctions exploration blocks. The new policy encourages NRIs to bid for or partner in these blocks, bringing foreign capital and technology to India's hydrocarbon sector.

Investment Opportunities for NRIs

Listed Companies in the Energy Sector

If you prefer equity market exposure over direct project investment, consider these avenues:

  • ONGC, GAIL, and IOC shares on the NSE and BSE—these companies benefit from the liberalized FDI policy as they can now attract foreign capital for exploration and infrastructure projects
  • CGD company stocks (such as IGL, MGL, Gujarat Gas)—these benefit directly from the 100% automatic FDI allowance for city gas distribution
  • Petroleum equipment and ethanol plant manufacturers—the policy supports 100% automatic FDI in manufacturing, boosting suppliers to the energy sector
Private Placements and Joint Ventures

You can also invest directly in private petroleum and gas companies or joint ventures through:

  • Direct equity stakes in exploration companies
  • Infrastructure funds focused on energy projects
  • Venture capital funds (VCFs) investing in ethanol, biogas, and energy tech startups (note: FDI in trusts is prohibited except for VCFs)

Compliance Checklist for NRI Investors

Before you invest, ensure you have:

1. Verified your PROI status with the RBI (you must be resident outside India for more than 182 days in the financial year) 2. Identified the activity you want to invest in (exploration, refining, CGD, LNG, etc.) 3. Determined the route (automatic or government approval) 4. Prepared documentation including proof of funds, investment agreement, and business plan 5. Engaged a chartered accountant or tax advisor familiar with FEMA and petroleum sector regulations 6. Ensured compliance with land use and environmental norms for the specific project 7. Kept Form FC-GPR records for RBI and income tax purposes

Monitoring and Updates

The FDI policy is under continuous review. The government has emphasized that it will keep the policy attractive and competitive. As of December 2025, the government reaffirmed its commitment to liberalizing FDI in strategic sectors, including petroleum and natural gas.

You should:

  • Check the RBI's FIRMS portal (Foreign Investment Regulation Management System) for the latest policy updates
  • Monitor SEBI and RBI circulars for any changes to investment rules or reporting requirements
  • Stay informed about sectoral conditions—for example, if you invest in fuel retail, multi-brand retail restrictions may apply
  • Review annual budget announcements for any changes to angel tax, startup benefits, or energy sector incentives

Key Takeaway

India's petroleum and natural gas sector is now significantly more open to NRI investment. The 100% automatic FDI route for exploration, refining (non-PSU), infrastructure, and LNG facilities removes bureaucratic hurdles and accelerates capital deployment. Whether you invest directly in projects or through equity markets, the liberalized policy creates compelling opportunities aligned with India's energy transition. However, always ensure compliance with FEMA regulations, tax rules, and sector-specific norms. Consult with a tax and investment advisor before committing capital.