Cairn India is preparing to submit plans to the government that will potentially increase expected output at the UK-controlled oil exploration and production group’s Rajasthan fields by 45 per cent.

The move comes as the group is officially beginning construction work on a long-awaited and critical 600km pipeline connecting the remote Rajasthan fields in western India to refineries on the coast.

“The pipeline agreement was very important for us but it is very important also for investment into India – it’s just a continuing sign that huge progress is being made,” said Cairn India’s chairman Bill Gammell, who flew to the site of the pipeline on Tuesday to formally open the project.

Cairn’s Rajasthan block is the singlemost important oil field to come onstream in the energy-starved country in decades. Based on present projections for output of 175,000 barrels per day, it will lift India’s domestic crude output by 25 per cent.

But the field has been subject to numerous bureaucratic hurdles, with the government taking more than a year to approve the plan to build the $800m pipeline.

The case has been seen as a test of India’s determination to attract foreign investors in its under-explored oil blocks. The country imports more than 70 per cent of its oil and is desperate to produce more domestically to help offset the pressure of rising crude prices on its balance of trade.

In the coming weeks, Cairn is set to file an addendum to the original field development plan, or masterplan, for its largest Rajasthan field, Mangala. It will incorporate the pipeline as a cost, that will be mostly recoverable against revenue generated by the fields.

The addendum also contains a proposal to undertake the first field trials on the field next year for “enhanced oil recovery (EOR)”, a technique that Cairn estimates could enable it to recover potentially 308m more barrels – 45 per cent more than its present target of 685m.

Goldman Sachs estimates the technique, which uses chemicals rather than just water to flush oil out of its underground reservoirs, could lift Cairn’s Rajasthan output by 25,000 barrels per day to 200,000 bpd.

If the trials are successful, Cairn would seek approval for the extra recoveries made possible by EOR in 2011 and begin full-scale implementation in 2013-2014.

“If you add that 300m barrels to the reserve base you can have a commensurate ability to produce more than you’re forecasting but also particularly to try and sustain a much longer plateau,” said Mr Gammel, adding that the proposal was still at the pilot project stages.

Goldman Sachs warned, however, that Cairn still faced a number of obstacles, including a dispute with the government over whether the field should be subject to cess, a form of tax applicable in other oil fields, and the possibility that EOR might prove less effective than hoped.

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