By Monica Chadlha BBC News, Mumbai

The film did not do very well on the Indian box office

A 10-member jury chose Paheli out of a field of 15 films short-listed as possible contenders.

The other frontrunners it beat included Bollywood hits such as Page 3, Black, Veer-Zaara, Parineeta and Mangal Pandey: The Rising.

Indian entries to the Oscars have a poor track record of making it to the top five in the Foreign Film category.

'Cinematic excellence'

Directed by actor turned film-maker Amol Palekar, Paheli stars Shah Rukh Khan and reigning top actress, Rani Mukherjee.

It is based on a traditional folk tale in which a ghost falls in love with a woman and takes the form of her husband to be with her.

The Film Federation of India is responsible for nominating Indian films for the Oscars. Officials say its choice was unanimous.

"This year, the competition was very tough. We saw each of the entries and finally, we all zeroed in on Paheli," Vinod Pande, the federation chairman told the BBC.

Paheli did not do very well at the Indian box office although it fared relatively well in overseas markets.

Mr Pande said the jury did not take that aspect in to consideration when choosing the Oscar entry.

"We do not carry that baggage when nominating a film.

"We have to be sure the movie representing India at the Oscars must have cinematic excellence, outstanding sound, outstanding music and truly represent the area it comes from," he said.

The time an Indian nomination to have achieved some success was in 2001 when global blockbuster Lagaan (Tax), starring Aamir Khan, made it to the top five.

India's film industry has an estimated annual turnover of nearly $1.3bn. It employs nearly six million people.

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