India's cabinet on Wednesday approved a plan that would allow local crude producers to sell oil to private companies, a move that would help raise revenue of state-run producers such as ONGC and Oil India .

The decision would be effective from Oct. 1, and existing conditions to sell crude oil to the government-run companies would be waived, the government said in a statement, adding that exports will not be permitted.

"Companies will now be free to sell crude oil from their fields in domestic market. Government revenues ... will continue to be calculated on uniform basis across all contracts," the government said.

India's oil output has been stagnant for years, forcing the country to rely on costly imports. India, the world's third largest oil importer and consumers of oil, buys about 85% of its crude oil needs from overseas.

The government currently allocates crude produced by state-run ONGC and Oil India to various refiners. The two companies charge a flat rate for their crude, irrespective of the grade.

Shares of Oil India and surged after the announcement, settling 4.8% higher, while ONGC shares closed 3.2% higher.

In the fiscal year to March 30, 2022, India produced 29.7 million tonnes of oil, a decline of about 2.6% from the previous year, according to the government data. (Reporting by Nidhi Verma; editing by David Evans)