A conducive policy and regulatory framework is necessary to attract private participation in the country's power and upstream energy sectors which will require an investment of up to $150 billion over the next five years, according to a report by KPMG and CII.

With a targeted GDP growth rate of 10 per cent, energy requirement is expected to grow at 6.4-8.0 per cent.

"India's power and upstream energy sectors need investments to the tune of $120-150 billion over the next five years," the report said.

Clarity in areas, including pricing of products and stability in policy framework, is essential to encourage private investment in the energy space, it said.

India's current energy consumption level is low as compared to the world average. For 2004-05, the country's total annual energy consumption was estimated at 572 million tons oil equivalent while the per capita consumption was at 531 kilograms oil equivalent.

As per the study, tariff and distribution reforms in energy sector need to be carried out to phase out subsidies and attain efficiency. Also, there is a need to diversify the country's energy basket to reduce dependence on a single fuel.

"The biggest challenge is to replace coal -- exhaustible in 40 years - representing 51 per cent of the energy basket, and oil, which is heavily dependent on international supply in the short term towards natural gas, hydro and renewable sources," according to the report.

There is a need to bring in market mechanisms in the energy sector under an independent regulatory oversight. A gradual approach is important till the supply side position improves and more players enter the sector, the report said.