India is to merge some of its state-owned oil and gas companies, creating a global giant that will be able to compete with some of the world’s largest petroleum companies.

Presenting his Budget speech to Parliament, Finance Minister Arun Jaitley said that the new entity will have the “capacity to bear higher risks and take higher investment decisions”, while benefitting from economies of scale.

The 13 companies being considered to take part in the merger include Indian Oil Corporation, the Oil & Natural Gas Corp and Hindustan Petroleum Corp.

The consolidated entity could rival the likes of Rosneft and BP in market value and financial power, suggest industry sources.

According to K Ravichandran, senior vice-president at Indian ratings agency ICRA, the merger will prove to be a good step in the long run, as it will enable the companies to withstand the volatility of the international oil and gas sector.

“Historically, such amalgamations have been successful for international companies such as Exxon Mobil, Shell and Chevron, because they result in stronger balance sheets as margins improve due to economies of scale.”

Deepak Mahurkar at PWC India said: “The merger will not have an immediate impact on the sector, because planning and setting up such a corporation will take two to three years, with the results apparent in five years.”

The Finance Minister also announced that two new strategic oil reserves will be established in Chandikhole (Odisha) and Bikaner (Rajasthan) — in underground caverns.

“This will increase our storage capacity to 15.33 million tonnes to meet the consumption requirement of about 90 days, which is at par with international benchmarks.”