India's Finance Minister P Chidambaram has said that the government is considering decontrolling the prices of locally produced oil and natural gas in order to encourage more foreign investment in the sector.

"We are at an advanced stage - a Cabinet paper is under consideration on how to move from a production sharing model to revenue sharing model for oil and gas explored and excavated by companies," he said. He was speaking as he kicked off his tour of Canada and US to attract investors to Asia's third largest economy.

Under the current rules, the government permits 100 per cent foreign direct investment (FDI) in exploration and production of oil and gas under a production sharing mechanism. The companies are permitted to recover all of their investment before they start sharing production with the government. The government is planning to replace the production-sharing model for oil and gas exploration with a revenue-share model.

However, the current mechanism has been criticised by the country's prime auditor, CAG, which says that it encourages companies to show inflated capital expenditure in order to avoid starting sharing of production with the government. Under the new proposed mechanism, the companies awarded with the blocks will have to start sharing production from the first day of production.