As per the policy draft more fiscal incentives were needed in the upstream sector as the response for the Nelp (New Exploration and Licencing Policy) has not really picked up. As the Government is desperately in need for foreign investments in the oil exploration sector it will have to provide sops that are very attractive, considering the fact that there is already a glut in the oil market and most of the multinationals have cut production.In other words, oil companies are already sitting on idle capacity and would need some very good reason to invest in high risk exploration and production activities.

Going by the current rate ofinvestment in the exploration sector, the Government will have to urgently come out with some good measures. According to the Ninth five-year plan document, oil reserves are likely to last only another 13 years even if only 30 per cent of the country's demand is met by domestic production. India's refining capacity, if all the planned expansion go through will be 391 million tonnes by 2020-21 from the current level of 68 million tonnes. In order to reach a level of 70 per cent of captive production the countries annual production has to be increased to 273.7 million tonnes from the current level of 33 million tonnes.

Though the country has huge proven reserves a large quantity remains untapped. India has in place reserve of 6.8 billion tonnes of oil and oil equivalent gas of which recoverable reserves are 2.5 billion tonnes. Out of the 26 sedimentary basins in the country only oil discoveries have been made in only six basins. There exists a huge potential for discovering oil, specially in central India andHimalayan foothills.

Among the ways in which the oil production can be increased is by enhancing oil recovery processes in the existing oil fields. The draft policy says that as much as 100 million tonnes of oil can be produced by enhancing recovery. This seems to be a tall order as the depleting production of the Bombay High (the country's largest oil find) has not yet been capped. The Government has almost lost the opportunity of closing down the well in order to increase pressure and thereby increase recovery at a later day. Oil prices which had touched a low $9.7 per barrel has now increased to almost $15 per barrel. With nearly 40 million tonnes of refining capacity been added within the next year the Government will now have little option than to utilise its forex reserves to import crude.

Though the policy correctly points out the need of fiscal incentives to attract investments, the same should also be available to the domestic companies. ONGC for example, in spite of the Nelp is being givencontrolled prices rather than international for deep sea drilling, which has more risk as well as investments involved. Unless domestic players are also treated at the same level as their foreign counterparts, the targets for oil exploration are unlikely to be met. Further, none of the Indian companies have any appreciable presence in the international market, thus they have little room for growth other than the domestic market.