The 70-year-old "Gol Maal" star will head the 17-member jury, which will select the country's official entry in the best foreign category of the 88th Academy Awards.
Palekar, whose film "Paheli" was India's official entry for the Academy Awards in 2005, said his appointment is just the part of a process and there is nothing special about it.
"I feel like laughing on one hand and feel scared on the other. Why are we creating hullabaloo? Just because I have been appointed chairman of a committee where there are 16 other members, it is not that I am going to do something individually and take the Indian flag there (Oscars)," Palekar told PTI in an interview.
"Everybody is behaving as if I have already brought an Oscar. This is just the beginning of a process." Palekar knows he is up for a mammoth task of choosing the best representative of Indian cinema for the coveted international award from a plethora of Bollywood and regional films.
The actor said it will not be easy and will invite a lot of scrutiny.
"To select one such film is an enormously difficult task because ours is probably the only industry in the world, which has such wide variety of films. Right from Bollywood masala mainstream cinema to regional cinema.
"In regional films also, we have the same segmentation (commercial and non-conventional). We also have some exciting parallel cinema happening. We will try our best with the collective wisdom," he said.
The actor-director, however, finds the obsession surrounding India's performance at the Oscars absurd.
"I have never thought Oscar is something great. I have always said, 'to me as a filmmaker and film lover, our National Award is the most important thing'. Selecting best film for National Award is equally tough. I look at the Oscar as only one step where Indian cinema can be presented with pride internationally."
The Mumbai-based actor, who has been away from the silver screen for quite a sometime, is known for his roles in relatable, middle-of-the-road dramas like "Rajnigandha", "Chhoti Si Baat", "Chitchor", "Gol Maal" and "Gharaunda" in the 1970s. He also directed National Award-winning films like "Dhyaas Parva" and "Quest".
Last year, "Liar's Dice", a road drama, starring Geetanjali Thapa and Nawazuddin Siddiqui in lead roles, was selected as India's official entry to the best foreign film category.
So far, "Mother India", "Salaam Bombay" and "Laggan" have been the Indian films that made it to the top five at the Academy Awards.
The 88th Academy awards will take place in Los Angeles on February 28, 2016.
