This document summarizes the impact of crude oil prices on the Indian economy. It discusses how India imports over 80% of its oil needs and its subsidy bill increased significantly with rising crude prices. Higher oil prices lead to higher inflation, slowing GDP growth and manufacturing. The transportation sector, which consumes over 60% of oil, is significantly impacted. In response, the government provides subsidies to oil companies and consumers while the RBI uses monetary policy tools to reduce inflationary pressures from increasing crude oil costs. Overall, rising crude oil prices have negative effects for India including higher inflation, weaker exports, reduced GDP growth and investment.

1. Impact Of Crude Oil Price
On Indian Economy
Presented By
• Nilesh Patil – 23
• Manali Gaonkar - 7
• Priti Raut - 29
• Abhijit Patil-21

2. 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)

3. Crude Oil Production
Source: BP Statistical Review of World Energy 2011
0 2000 4000 6000 8000 10000 12000
Russia
Saudi…
US
Iran
China
Canada
Mexico
UAE
Kuwait
India
Thousand Barrels Daily

4. Crude Oil Consumption
Source: BP Statistical Review of World Energy 2011
0 5000 10000 15000 20000 25000
US
China
Japan
India
Russia
Thousand Barrels Daily

5. Source: BP Statistical Review of World Energy 2011

6. India’s Oil Import
11%
18%
5%
10%
22%
34%
Iran Saudi Arabia Other
Western Hemisphere Africa Other Middle East
Source: Global Trade Atlas

7. Energy Consumption In India
24%
1%
24%
2%
42%
7%
Oil
Nuclear
Combustible Renewables and Waste
Other Renewables
Coal
Source: The International Energy Agency

8. Consumption of Major Petroleum
Products
9%
8%
36%
7%
40%
LPG Kerosene
Diesel Petrol
All other products
Source: Ministry of Petroleum Basic Statics

10. Source:- Energy Information Administration and Bureau of Labor Statistics 2012
Crude Oil Price

11. Factor affecting crude oil price
• World oil demand
• World oil supply
• Weather conditions
• Government policy
• Political Conditions
• Futures Market

12. 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.

13. Crude Oil Subsidy
0
20000
40000
60000
80000
Crude Oil Subsidy
Chart Title
2010-11 2011-12
Rs in Cr
78% jump
Source: Budget document

14. Impact of increase in oil prices on
growth and inflation levels in India
International
oil
prices per
barrel ($)
Increase in
international
oil prices (%)
Extent of fall in
manufacturing
sector
(%)
Extent of fall in
GDP growth
(%)
Extent of
increase in WPI
(%)
50 38.9 2.1 0.4 1.5
60 66.7 9.7 1.9 3.6
70 94.2 16.9 3.4 5.7
80 122.2 24.5 4.9 7.9
140 126.1 29.7 7.3 7.2
Source:- Extractive Industries for Development Report
GDP=Private Consumption + Gross Investment + Govt Spending + ( Export – Import).

15. 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.

16. Effects on Transportation
61%
5%
14%
7%
13%
Transport Non-Energy Other sector Electricity and Heating Industry
Source:- Report of the Working Group on Petroleum & Natural Gas Sector for the XI
plan (2007-2012)

17. • 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.

18. 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)

19. Conclusion
To summarize the study
When Oil prices Moves UP :
1.Inflation increases
2.Govt. spending on subsidy increases
3.Foreign currency reserves reduce
4.Our export becomes weaker
5.GDP is affected negatively
6.Share market crumbles
7.Investment decreases

20. Thank You