The cap the number of subsidised LPG (liquefied petroleum gas) cylinders and direct cash transfer would lead to better functioning of oil and gas markets, Indian Oil Corp (IOC) Chairman & Managing Director R S Butola said.

In a recent interview, Butola said that if something is made available at a lower price than market level, there will be no restrain. He added that having market price or limited subsidy would resources to an optimal use.

Speaking on the topic, he said, "The principle of pricing the product at the market level would help, irrespective of whether the number of subsidised cylinders is capped at six or nine. Capping and direct cash transfers are some indicators that enable better functioning of markets."

According to Butola, IOC had an under recovery of $26 billion last year. Of that, $16 billion was on diesel, while the remaining was on superior kerosene oil and LPG.

When asked about the company's preparation for the roll out of the direct cash transfer scheme, he said the company was working out the mechanism for LPG in the 51 districts, where the price differential would be credited directly in the consumers' bank accounts. However, he acknowledged that the company would face the real challenge in implementing the scheme for kerosene.

Butola added that the government would also have to think about diesel deregulation.