The commerce and industry ministry has floated a draft cabinet note seeking inter-ministerial views on a proposal to allow up to 100 per cent foreign investment under automatic route in oil and gas PSUs, which have an 'in-principle' approval for disinvestment, sources said.

The move, if approved by the union cabinet, would facilitate privatisation of India's second biggest oil refiner Bharat Petroleum Corp Ltd (BPCL).

The government is privatising BPCL and is selling its entire 52.98 per cent stake in the company.

Sources said that as per the draft note, a new clause would be added in the FDI policy under the petroleum and natural gas sector.

According to the proposal, foreign investment up to 100 per cent under the automatic route would be allowed in cases where an 'in-principle' approval for disinvestment of a PSU has been granted by the government.

For BPCL privatisation, mining-to-oil conglomerate Vedanta had put in an expression of interest (EoI) for buying the government's 52.98 per cent stake in the PSU. The other two bidders are said to be global funds, one of them being Apollo Global Management.

After collating the views, the commerce and industry ministry would seek approval of the union cabinet on the proposal.

At present, only 49 per cent FDI is permitted through automatic route in petroleum refining by the public sector undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.