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THE IMPACT OF THE PETROLEUM SECTOR ON THE INDIAN GDP - BY AKSHITA SINGH
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THE IMPACT
OF THE PETROLEUM SECTOR ON THE INDIAN GDP
Authored by -AKSHITA SINGH
Abstract
According to Indian research and studies, the macroeconomic impact
on the average person's expenditure is primarily due to the rising price of
gasoline and petroleum products.
India is the world's third-largest consumer of energy and oil. In
FY 2021–22, India consumed 204.23 MMT of petroleum products and 63.9 BCM of
natural gas, up 5.1% and 5%, respectively, from FY 2020–21. Compared to a 7%
worldwide growth rate, India's oil demand is expected to increase by 50% to 7.2
MBD in 2030 from 4.8 MBD in 2019. In contrast to a 12% increase in world gas
demand, India's natural gas demand is expected to grow from 133 BCM in 2030 to
64 BCM in 2019.
The purpose of this paper is to understand whether economic growth
can be explained by changes in oil prices. The relationship between rising oil
prices and economic growth is favorably connected for oil-exporting nations,
whereas it is negatively correlated for oil-importing nations. The study is
restricted to Indian data.
KEYWORDS: petroleum
products, energy, natural gas, oil-imports.
i.
INTRODUCTION
India is the third
largest energy consumer in the world after US and China and also the fastest
growing consumer consuming around 809 million tons of oil equivalent as per the
reports suggested by researchers in 2018.
Due to its crucial role in meeting the world's energy needs, crude oil
has emerged as one of the primary global economic indicators since the middle
of the 20th century. Currently, the significance of crude oil as the primary
source of energy has considerably decreased, since new energy sources have
emerged. Despite this, oil has a greater impact on society as a whole than only
on the economy. As a result, the consensus among economists is that there is a
significant correlation between changes in oil prices and a country's rate of
economic growth.
ii.
ABOUT INDIAN ECONOMY
The Indian economy is
slowly losing steam as inflationary expectations stay elevated due to the
rising global oil and food costs, monetary policy normalizes, and the global
economic environment worsens after recording the strongest GDP bounce in the
G20 in 2021. The forecast for real GDP growth in 2016 is 6.9%.
Sectors that affect the growth
of the INDIAN GDP :
·
Agriculture
·
Industry
and Service
·
Banking
and Finance
·
Global
Trade Relations
·
Foreign
Direct Investment in India
·
Currency
·
Natural
Resources
Despite an increase in
business investment aided by the Production-Linked Incentive (PLI) Scheme,
fiscal year (FY) 2022–23 and 6.2% in FY 2023–24. The rise in the price of
energy imports will cause the current account deficit to grow while inflation
will progressively drop.The rate at which the economy is growing increases the
country's need to import more and more crude oil to meet the country's
industrial and domestic needs.
iii.
ENERGY SECTOR
India's oil and gas industry is thought to be worth
90 billion US dollars.
The greatest proportion among Indian refining enterprises is 80.55 million metric tonnes per annum (MMTPA) of refining capacity. It makes up about 32% of the country's total refining capacity. About 75% of the crude oil required by India is imported. However, it continues to maintain a net exportable surplus of refined petroleum products thanks to 25 refineries with a combined capacity of 2.5 million barrels per day. India is anticipated to overtake the US, China, and Japan as the Fourth
largest energy user. The Indian oil corporations have a number of partnerships on the regional and international levels that help to meet India's rising energy demand.
An investment of US$6
billion has been planned by Indian Oil Corporation Limited in a Ceyhan refinery
that will produce 15 MTPA of refined petroleum products. Additionally, an
agreement between Indian Oil Corporation Limited and the Turkish entrepreneurs
of Trans Anatolian Pipeline Company (TAPCO) to purchase a 12.5% stake in the
US$1.5 billion pipeline from Samsun to Ceyhan is nearly complete.
In 2021-22, the
production of petroleum products was 254.3 MMT. During fiscal years 20-21,
total crude oil output was 30.5 MMT. In fiscal year 20-21, natural gas
production was 28.67 BCM. Petroleum product exports totaled $ 6080.05 million
in September 2022, accounting for 18.64% of total monthly exports.
iv.
OIL AND GAS INDUSTRY IN INDIA
Oil and Gas Sector in India is one of the Fastest Growing Industry of the economy. The eight key industries of India
include the oil and gas industry, which has a significant impact on all other
significant economic sectors.
The need for oil and gas
is expected to rise as a result of the direct connection between India's
economic growth and its energy needs, making the industry highly favorable for
investment. As of 2021, India remained the third-largest oil consumer in the
world.
The government has
implemented a number of programs to meet the rising demand. It has permitted
100 percent foreign direct investment (FDI) in a number of industry categories,
including refineries, natural gas, and petroleum products, among others.
Without any exceptions, the FDI cap for public-sector refining projects has
increased to 49%.
Crude oil output totals
267 million tonnes, accounting for 2% of global oil production, while natural gas production totals 636 billion cubic
meters, accounting for 5% of global gas production. Since independence, India
has discovered significant hydrocarbon resources on land and at sea. Only about
38% (1119 trillion cubic feet) of them have been examined.At present usage rates,
these reserves are expected to last more than 100 years. It is an appealing
investment destination and a lucrative business prospect because of its
enormous potential.
Indian energy demand is
predicted to expand by 4-5 percent each year over the next 10 years, according
to the Petroleum Planning & Analysis Cell (PPAC), a division of the
Ministry of Petroleum & Natural Gas. This will need investments in the Oil
and Gas Sector in India of $250 billion (Rs 12 lakh crore). Rising incomes,
increased urbanisation, industrialization, population growth, and greater
living standards will all contribute to this growth.
TABLE 1:
INDIAN REFINERY SECTOR
|
Refinery location
|
Name of Company
|
Crude oil capacity
(1000 barrels/ day
|
|
Barnai, Bihar
|
Indian oil corporation Ltd.
|
120
|
|
Bongaigon, Assam
|
Indian oil corporation Ltd.
|
47
|
|
Digboi, Assam
|
Indian oil corporation
ltd
|
13
|
|
Guwahati , Assam
|
Indian oil corporation
ltd
|
20
|
|
Haldai , West Benagl
|
Indian oil corporation
ltd
|
151
|
|
Koyali, Gujrat
|
Indian oil corporation
ltd
|
275
|
|
Mathura , UP
|
Indian oil corporation
ltd
|
160
|
|
Panipat , Haryana
|
Indian oil corporation
ltd
|
301
|
|
Mahul , Mumbai
|
Hindustan Petroleum corporation Ltd.
|
131
|
|
Vishakhapatnam ,AP
|
Hindustan Petroleum corporation Ltd
|
166
|
|
Mahul , Mumbai
|
Bharat petroleum corp.Ltd
|
241
|
|
Kochi, Kerala
|
Bharat petroleum corp.Ltd
|
191
|
|
Manali, Chennai
|
Chennai petroleum corp. Ltd
|
211
|
|
Nagapattinam , Tamil
Nadu
|
Chennai petroleum corp. Ltd
|
20
|
|
Mangalore, Karnataka
|
Mangalore refinery ltd.
|
302
|
|
Namaligarh, Assam
|
Namaligarh refinery
ltd.
|
60
|
|
Tatipaka , AP
|
ONGC Ltd.
|
1
|
|
Joint Venture
|
|
|
|
Bina, MP
|
Bharat-Oman refinery ltd.
|
120
|
|
Bathinda, Punjab
|
HPCL-Mittal Energy Ltd. 180
|
180
|
|
Private Sector
|
|
|
|
Jamnagar,
|
Reliance Industry Ltd.
|
660
|
|
SEZ, Jamnagar
|
Reliance Industry ltd.
|
580
|
|
Vadinar, Gujarat
|
Essar oil Ltd.
|
405
|
v.
INDIA’S PRODUCTION
AND CONSUMPTION OF CRUDE OIL
India produces 584.4
thousand barrels per day of crude oil ranking 20th in the world.
This production includes crude oil, shale oil, oil sands, and NGLs excluding
liquid fuels like biomass and coal derivates.
Currently, India is
targeting around 30841.49 TMT of total crude oil production by major oil and
gas sector companies like ONGC, Oil and
Natural Gas Corporation Oil India Ltd., Larsen and Toubro Ltd., BP PLC., Indian
Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., Hindustan Petroleum
Corporation Ltd, Nayara Energy Limited.
etc.
The image
below depicts the production of crude oil in India
Indian’s
consumption of crude oil
India’s consumption of
crude oil is 4878.175 barrel/day which is
growing at 3%, higher than the average global growth rate of around 1%
As the
economy recovers from the pandemic's damage, India's oil demand went 8.2 percent to 5.15 million barrels per day
in 2022. In its one ofmonthly oil market report, the Organization of Petroleum
Exporting Countries (OPEC) predicted that the world's third-largest energy
consumer would increase 0.39 million barrels per day (bpd) of crude oil demand
in 2022. India's oil demand increased by 5.61 percent from 4.51 million barrels
per day in 2020 to 4.76 million bpd in 2021.
vi.
IMPACT OF CRUDE OIL PRICES ON INDIAN ENGERGY SECTOR
There was a
growing demand for oil worldwide even in pre-pandemic times, but the
supply was not up to the mark. The report quoted the International Energy
Agency (IEA) saying that there is still a shortage of
nearly 1 million barrels per day worldwide. This imbalance between
demand and supply of oil coupled with various other geopolitical tensions
resulted in the spike in price.
With the
rise in crude oil prices, India's import bill will increase, and hence the CAD
will widen (difference between import and export). As per ICRA, for every
$10 per barrel increase in the price of the Indian crude oil basket, the CAD
could widen by $14-$15 billion, or 0.4% of GDP
In the
fiscal year 2022, the average price of Indian basket crude oil is expected to
be 72.95 US dollars a barrel. While the price of Indian basket crude oil fluctuated
during the reporting period, this result was much higher than the previous
year's average of 44.82 US dollars. Around the end of the fiscal year 2012, the
average price of crude oil increased modestly, reaching around 112 US dollars
per barrel.
The future of the Indian
energy sector
India, the world's
third-largest main energy consumer, relies on a variety of sources to meet its
energy needs.
Simultaneously, a large increase in
primary energy consumption from various sources is predicted for the future
decades, with renewables playing a critical part in India's energy revolution.
vii.
RISING OIL PRICES HAVE AN EFFECT ON THE INDIAN ECONOMY
BOTH DIRECTLY AND INDIRECTLY. THE EFFECTS OF RISING CRUDE OIL PRICES ON THE
INDIAN ECONOMY ARE LISTED BELOW:
·
Fall In Value of Rupee: India's overall oil imports have decreased after the Covid-19
outbreak. In FY19, over 27% of India's total imports were made up of oil; in
FY21, that percentage dropped to 21%. Despite a minor increase in FY22, it has
not yet returned to its pre-pandemic level. "We project that a 10%
increase in oil prices will result in a $15 billion or 0.4% GDP increase in
India's current account deficit (CAD). The INR will suffer as a result,
according to the report.
·
Higher Inflation: According to the analysis, a 10% increase in crude oil will cause
the Wholesale Price Index (WPI) in India to rise by around 0.9%. According to
the research, rising oil prices may potentially cause WPI-based inflation rates
of 12% and 6% for the fiscal years (FY) 22 and 23 respectively.The consumer
price index (CPI) would also be significantly impacted, and as a result of the
increase in oil prices, CPI inflation may reach 5% in FY23. As a result, if the
price of oil increases by 10%, the price of goods in India will increase by 5%.
·
Fiscal deficit: It is the discrepancy between what the government receives in direct
and indirect taxes and what it spends. The price of gasoline won't go up if the
government decides not to pass on the increases in crude oil prices to the customer.
However, somebody needs to absorb the blow. It will be the Indian government in
this instance. It will result in a budget deficit, which is never beneficial to
the economy
·
Foreign exchange reserves: India's strong foreign exchange reserves provided it with excellent
protection against any balance of payments volatility. India has over $640
billion in foreign exchange reserves up until recently. However, the RBI must
sell dollars in order to control rupee depreciation, which is draining India's
foreign exchange reserves.
·
Growth concerns: The RBI will need to raise interest rates
in order to control inflation as a result of rising crude oil prices. It will
result in less spending, which will slow down the nation's growth. As per
estimates, a rally of $10 per barrel in the India crude basket could lead to a
10-dollar basis point fall from the annual GDP growth estimate.
viii.
CONCLUSION & SUGGESTIONS
Oil imports into India
are rising. Our reliance has grown to 80% and is expected to continue. 2008
also saw an unheard-of increase in the price of oil on the global market. The
unpredictability of oil prices has also grown. Although it is difficult to
anticipate the future of oil prices, an increase is widely predicted. India's
reliance on oil imports increased from 78.5% to 81% in 2015–16.
By 2022, Narendra Modi
wanted to reduce this number to 67%. Recently, the government unveiled new
exploration policies for its oil and gas blocks in an effort to close gaps in
its earlier regulations that only allowed for a small amount of participation
from resource-rich foreign oil companies and failed to significantly increase
domestic output.
In
fiscal year 2021, India's consumption of petroleum products was roughly 194
million metric tonnes. The country was ranked third in the world in terms of
primary energy usage. With the sector quickly expanding, inland production of
petroleum products is no longer sufficient. During the fiscal year 2019, the
import volume of petroleum products approached 33 million metric tonnes.
If we look towards the
future with the support of strong economic growth and a thriving automobile
sector, demand for petroleum products was expected to rise, as evidenced by an
annual growth rate of more than three percent in the fiscal year 2019. Although
the country's auctioned renewable capacity was close to 70% in 2017, the
renewable market has not been that inviting.
With oil reserves of less
than a billion metric tonnes in 2017, a fundamental shift in the country's
transportation policy could help the situation. Rapid globalisation and rapidly
evolving technology may be able to save what remains of the reserves. Solar
energy investments and the replacement of conventional automobiles with
electric vehicles may hold the key to a sustainable future in a bright sunny
country with plenty of sunlight hours.
ix.
REFERENCES
MINISTRY OF PETROLEUM AND
NATURAL GAS GOVERNMENT OF INDIA ANNUAL REPORT 2019-20
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Nov. 12, 2022)
STATISTA, https://www.statista.com/statistics/715219/india-production-volume-of-petroleum-products/ (last visited Nov. 12,2022)
INDMONEY, https://www.indmoney.com/articles/economy/oil-prices-and-indian-economy-will-rising-oil-hurt-india-s-growth (last visited Nov. 12,2022)
Madhumitha Jaganmohan(), Consumption volume of petroleum
products in India FY 2012-20, https://www.statista.com/statistics/715241/india-consumption-volume-of-petroleum-products/ (last visited Nov. 12,2022)
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Article Information
THE IMPACT OF THE PETROLEUM SECTOR ON THE INDIAN GDP - BY AKSHITA SINGH
Authors: AKSHITA SINGH
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/12/20
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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