Impact Of Crude Oil Price On Indian Economy Presented By • Nilesh Patil – 23 • Manali Gaonkar - 7 • Priti Raut - 29 • Abhijit Patil-21
What Crude Oil• Crude oil is a naturally-occurring substance found in certain rock formations in the earth.• It is a dark, sticky liquid classified as a hydrocarbon. This means, it is a compound containing mainly carbon and hydrogen.• Crude oil is highly flammable and can be burned to create energy.• Petroleum= Petra (Rock) + Oleum (Oil) (Latin)
Crude Oil Production IndiaKuwait Thousand Barrels Daily UAEMexicoCanada China Iran US Saudi…Russia 0 2000 4000 6000 8000 10000 12000 Source: BP Statistical Review of World Energy 2011
Crude Oil ConsumptionRussia Thousand Barrels Daily IndiaJapanChina US 0 5000 10000 15000 20000 25000 Source: BP Statistical Review of World Energy 2011
Source: BP Statistical Review of World Energy 2011
India’s Oil Import 11% 34% 18% 5% 10% 22%Iran Saudi Arabia OtherWestern Hemisphere Africa Other Middle East Source: Global Trade Atlas
Energy Consumption In India 7% 24% 1% 42% 24% Oil 2% Nuclear Combustible Renewables and Waste Other Renewables Coal Source: The International Energy Agency
Consumption of Major Petroleum Products 9% 8% 40% 36% 7% LPG Kerosene Diesel Petrol All other products Source: Ministry of Petroleum Basic Statics
Crude Oil PriceSource:- Energy Information Administration and Bureau of Labor Statistics 2012
Factor affecting crude oil price• World oil demand• World oil supply• Weather conditions• Government policy• Political Conditions• Futures Market
Subsidy• India’s subsidy bill zoomed to Rs 2.16 trillion or 2.5% of GDP .• It was due to two reason: High Crude Oil prices Fertilizer subsidies, primarily on account of imported non-urea fertilizers.• Last year budget government pegged curde oil price of brent at $90. This year they kept the same at $115.• Next year government has reduced the budgeted amount for oil subsidy to Rs43580 crore.
Impact of increase in oil prices on growth and inflation levels in India GDP=Private Consumption + Gross Investment + Govt Spending + ( Export – Import).International Increase in Extent of fall in Extent of fall in Extent ofoil international manufacturing GDP growth increase in WPIprices per oil prices (%) sector (%) (%)barrel ($) (%)50 38.9 2.1 0.4 1.560 66.7 9.7 1.9 3.670 94.2 16.9 3.4 5.780 122.2 24.5 4.9 7.9140 126.1 29.7 7.3 7.2 Source:- Extractive Industries for Development Report
Inflation• Crude oil price move up or down, inflation follows in the same direction.• Crude oil price increases, it’s directly affects the rate inflation. When the prices went to high of more than $100/barrel in 2008, the inflation also went up to 12.27% which was highest for India in previous two decade.
Effects on Transportation 13% 7% 14% 61% 5%Transport Non-Energy Other sector Electricity and Heating IndustrySource:- Report of the Working Group on Petroleum & Natural Gas Sector for the XIplan (2007-2012)
• The transport sector is clearly dominant in petroleum product consumption.• Transport sector consumes 60% of total petroleum products.• Road transport accounts for an even higher percentage of energy consumption.
Steps taken by the govt. and RBI What Govt. did ?1. Provided huge amount of subsidies to oil companies to keep them solvent.2. This increased domestic prices of diesel and petrol.3. Start looking for alternate energy options to prevent future oil shocks. What RBI did?Increase in CRR, Repo rates.(i.e. used monetary tools to calm down the heat)
Conclusion To summarize the studyWhen Oil prices Moves UP :1.Inflation increases2.Govt. spending on subsidy increases3.Foreign currency reserves reduce4.Our export becomes weaker5.GDP is affected negatively6.Share market crumbles7.Investment decreases