A near 30 per cent increase in the country's oil refining capacity could ease some of the pain as a higher outlay on crude oil would be offset by lower imports of more expensive petroleum products.

"Our net import figure, including crude and products, could go up to $7.9 billion from the existing $5.9 billion," said Sandeep Dhingra, analyst at Jardine Fleming India Broking Ltd.

International crude prices have risen by $6 to over $16 per barrel in the past two months, driven by oil output cuts by the Opec. Prices hit 25-year lows below $10 a barrel in 1998.

"Assuming the average crude oil price is around $15 per barrel in 1999/2000, our import bill could be higher by one to 1.5 billion dollars," said Avadhoot Sabnis, oil and gas analyst at HSBC Securities.

Other analysts saidthe rise in oil imports could range between $1-2 billion dollars depending on how international oil prices fared.

Last year's low crude prices gave India a welcome relief, as oil imports account for around one-fifth of total imports, but the trade deficit still widened to $8.25 billion in 1998/99 (April-March) from $6.37 billion in the previous year.

Despite the boost in refining capacity analysts saw limited room to increase exports of petroleum products.

Reliance Petroleum Ltd, the first private refinery, is expected to start production by June 1999.

Among the state-owned refineries, Indian Oil Corp's (IOC) Panipat refinery and the Numaligarh Refinery Ltd are to begin production and Hindustan Petroleum Corp's Visakhapatnam refinery and Mangalore Refineries Public Ltd's refining is expanding.

In its oil economy budget for 1999/2000 (April-March), India forecast it would import 64.5 million tonnes of crude oil against an approximate 39.37 million tonnes imported in 1998/99.

But while crude importsare seen rising 64 per cent, product imports are expected to be 30 per cent lower.

India expects to reduce diesel imports by 74 per cent to 3.06 million tonnes in 1999/2000 and import only 13.6 tonnes of petroleum products against 19.3 million in 1998/99.

"To the extent India imports additional crude oil at $16-17 per barrel in place of diesel which costs $4-5 more, there will be captive value-addition," Sonal Jain, analyst with ABN Amro Asia Equities said.

Gross refining margins in international markets have been sliding to lower than their average levels of $1.5 to $2 per barrel, analysts said.

"No one is looking at the economic returns to the refining industry, especially on new incremental investments," said Mark Flannery, Director of Asian Oil and Gas Research at Credit Suisse First Boston, Hongkong.

Locally, almost 75 per cent of domestic oil prices are linked to international levels, adjusted for import duties.