Research Methodology

Faculty name: Dr. Ankita Srivastava

Signature: ___

Date: __
 Impact on crude oil price on Indian economy

Executive summary
Energy is the prime mover of economic growth and is vital to the sustenance of a Modern
economy. Future economic growth crucially depends on the long-term Availability of energy
from sources that are affordable, accessible and environmentally friendly. Efficient, reliable
and competitively priced energy supplies are prerequisites for Accelerating economic growth.
For any developing country, the strategy to obtain and meet the energy requirements and
energy developments are the integral Part of the overall economic strategy. Efficient use of
resources and long-term Sustainability in its utilization is of prime importance for economic
development. Sustainability would take into account not only available natural resources but
also to take care of the related ecological and social aspects to meet the priority needs of the
economy. Simultaneous and concurrent action is, therefore, Necessary to ensure that the
short-term concerns do not detract the economy Away from the long-term goals

Introduction of the study

Efficient reliable and competitively priced energy supplies are prerequisites for accelerating
economic growth. For any developing country, the strategy for energy development is an
integral part of the overall economic strategy. Efficient use of resources and long-term
sustainability remains core objective of economic planning.

The energy resources available indigenously are limited and may not be sufficient in the long
run to sustain the process of economic development translating into increased energy import
dependence. The base of the country’s energy supply system is tilted towards fossil fuels.
 Literature of review

(Firdous A Wani*, 2015)

The requirement of crude oil has been increasing at a rapid pace which has made India
dependent on crude oil imports. The basic price of crude oil is always lesser the import Taxes
make it more costly for a common man. The price of petrol or other related products
increases accordingly which results in increase in expenditure of a common man. This paper
given an insight into the present state of crude oil imports and an attempt has been made to
explain the importance of reducing the crude oil imports in order to improve the living
standards of a common man.

(Dr. K. Soundarapandiyan, 2017)

To same inflation & to sustain rapid economic growth crude plays a vital role in VUCA
market where in the world, India is positioned 4th largest consumer of crude oil by importing
100 million tons of crude oil every year which falls 37 percent of the total import. Crude is a
price determinant among various other commodities since rise or fall in price will directly
have an impact on price of various commodities and society as a whole. Even reduction of
one-dollar in price of crude impacts three-fold effect in the economy i.e., saves the country
about 40 billion rupees. The downward range of fall in oil prices nearly 55 percent since June
2014 authenticates the reason of oversupply from OPEC & US and sluggish demand in usage
across the globe. India has recently adopted a pricing mechanism for its petroleum products
which reflects the global crude prices. India’s reflection to the global trend on crude prices
has an impact of 57 percent fall in price which India capitalized to fund its current account
deficit which paved the way to stabilize the exchange rate. This paper addresses the impact of
crude oil price on the Indian economy by considering the relevant inputs like Gross Domestic
Product (GDP), Consumer Price Index (CPI) and Crude Oil Price for the period of 15 years
(2001 – 2015). The proposed model to analyze the linkage among the key variables is done
by using Regression model.

(Akansha Sanjay Jain, 2015)

With rapid economic growth, energy demand in India has been rising rapidly, and India is
now the fourth largest consumer of crude oil in the world. Unfortunately, India has to import
most of its oil requirement, which leads to severe pressure on the economy when the oil
prices rise. Thus, estimations of crude oil demand and projections for the future should be
useful to policy makers in making appropriate supply arrangements for the future. In this
paper empirically estimates falling of crude prices and position of India’s oil industry. We
analyze the relationship trend of production over its consumption and production with import.
Then crude prices effect on India’s inflation, its importance to Reserve Bank of India, its
impact on fiscal and tread deficit and Indian oil companies. Finally by considering all these
effect and impacts we figure out future hold for India considering crude prices. Therefore,
India should take various measures to improve efficiency in the use of petroleum products
and try to enhance supplies such as through production sharing agreements by Indian oil
companies with other countries. We also need to increase use of nuclear, hydro, solar, and
other alternative energy sources, as Western European countries have been doing. Careful
planning to ensure that future petroleum requirements can be met will be useful in sustaining
rapid economic growth in the future.

(SWADIMATH*, ANILKUMAR**, & JOSHI***, 2013)

The study is an attempt to understand the causes for rise in crude oil prices and the factors
that influence it. As a matter of fact, crude oil is the most essential commodity and also the
most traded product which influences an economy. Petroleum known as „liquid gold‟ is an
extract of crude oil and is compared to gold because it is an exhaustible resource and also of
its economic value. The objective of the study is to study the change in prices of crude oil and
its effect on the environment of business. Crude oil being very indispensable it greatly affects
the prices of commodities, particularly the transport sector. In India the change in the price of
crude oil has been a major cause for the rise in inflation rate as it greatly affects the prices of
essential commodities and adversely affecting the common men. The OPEC organization is
composed of 12 nations possess over 60% of world reserves of crude that work as a cartel
and to an extent they have a monopolistic approach towards the regularization & controlling
of crude oil prices across the world.

(KARUNAKARAN, 2014)

Efficient, reliable and competitively priced energy supplies are prerequisites for accelerating
economic growth. For any developing country, the strategy for energy development is an
integral part of the overall economic strategy. Efficient use of resources and long-term
sustainability remains core objective of economic planning. Sustainability would take into
account not only available natural resources and issues related to ecological balance but also
established delivery mechanisms, the technological constraints that are prevalent in the
system and immediate compulsion to meet the priority needs of the economy, economic
equity and self-reliance. Simultaneous and concurrent action is, therefore, necessary to ensure
that the short-term concerns do not detract the economy away from the long-term goals.
Realization of high economic growth aspirations by the country in the coming decades, calls
for rapid development of the energy market. The energy resources available indigenously are
limited and may not be sufficient in the long run to sustain the process of economic
development translating into increased energy import dependence. The base of the country’s
energy supply system is tilted towards fossil fuels, which are finite. This has serious long-
term implications as the emerging patterns of energy consumption, which is heavily skewed
towards oil and gas, bring to focus many ecological and environmental issues.
(Aparna, 2014)

Crude oil prices play a very significant role on the economy of any country. India's growth
story hovers around the import of oil as India imports 70% of its crude requirements. In this
paper, an attempt has been made to study the impact of crude oil price on the Indian economy
by considering Gross Domestic Product (GDP), Index of Industrial Production (IIP) and
Wholesale Price Index (WPI) as the relevant variables. Vector Auto Regression (VAR) has
been used to analyses the objective since a direct causal relationship could not be established.

Statement of the problem

Crude oil price is an important parameter for refining industries, which has a Bearing on
economy, because it is vital input for productivity. There is a vast gap in demand and
production of crude oil in India. National oil companies are able to produce 23-24% of
India’s total requirements of crude oil. The production of Crude oil from public sector
enterprises in India has been decreasing due to old and the maturity of the fields.

India is not self-reliance on crude oil production; therefore, it is necessary and inevitable to
import the crude oil to bridge the gap between demand and supply. The increase in
international crude oil prices will make import costly and raise the Indian crude basket price.
Therefore, both international crude oil price rise and Import dependency on crude oil are the
problematic area that may damage the Indian economy

Objective of the study

The following are the main objective of my research study

 To study the impact of the higher oil prices on the economy.

 To understand the reasons why crude oil price is rising in India.
 To study how common people are affected by these prices hike.
 To find a better and relevant solution for this problem

Limitation of the study

 Individual surveys generally cannot provide strong evidence of causes and effects.
 The lack of time to carry out a survey.
 The lack of funding necessary to carry out a survey.
 Methodology of the study
A Research Methodology defines the purpose of the research, how it proceed, how to
measure progress and what constitute success with respect to the objective determined for
carrying out the research study.

The first step of research is to study why this research is to be done and what all are the
methods of study. In the topic the impact of the higher oil prices on the Indian economic. I
have followed various methods and used various techniques which help me for completing
the project. In general price hike of crude oil is not only a problem in India along as it is
faced global market. So the study from global market with the help of various journals and
other references. The research design is given as below. Exploratory Research, this kind of
research has the primary objective of development of insights into the problem.

Research Design
Research design is a blue print of the study conducted, which includes steps of Data
collection, sample selection, process of data and finally interpretation of the Data. The period
of study is important in collecting the Primary Data

Data Collection

Primary Data:

Questionnaire:
A set of question related to the research topic was formulated it is distributed among various
people for getting response. The questionnaire is prepared online form for getting more
responses with the help of goggle .docs.

Secondary Data:
Secondary data that is already available and published. Such as various web sites,
newspapers, magazines, internet etc. in order to find information useful for completion of this
project.

Area of the study

The main objective is to understand why the crude oil price is rising in India and what will be
the after effects of this problem and to find a relevant solution for this. As the topic is very
vast and deep to study it is very tough to collect and evaluate. Thus we selected my area of
study mainly in we have received 100 responses from Kalol and Ahmedabad.
Types of the study: -
We are study of descriptive analysis of Crude oil prices in the research. We are research on
impact of the crude oil prices on customers. In this research we are analysis of past
performance of crude oil prices and its impact on customers.

Sampling Techniques:-
In this research, we are applied conveyance sampling techniques.
 What is crude oil?
Crude oil is a naturally occurring thick, dark brown flammable liquid which is derived from
fossil fuels. Crude oil is also referred as black gold as it of immense economic importance. It
is a non-renewable resource, thus its demand is greater than supply leading to high price
rise.it is recovered mostly through oil drilling and is then refined into a large number of
consumer products, like petrol, kerosene, plastics and pharmaceuticals. It is a type of fossil
fuel consisting of a complex mixture of hydrocarbons.

Factors Affecting Global Oil Prices

Demand and Supply:

The price of crude oil like any other commodity is highly volatile and is largely determined
by the equation of demand and supply.

The 14 OPEC countries from the Middle East hold the largest proven reserves of oil in the
world. The Organization of Petroleum Exporting Countries (OPEC) regulates the oil
production and it’s pricing.

The global economic growth slowdown has resulted in the reduction of demand of crude oil,
especially from emerging economies like China and India that are the major importers of
crude oil.

Consequently, OPEC decided to cut down its production with effect from January 2017,
which forced the oil prices to rise.

However, excessive increases in crude oil prices brought by production cuts would end up
further dampening the demand. The OPEC will be meeting on 22 June 2018 to discuss and
possibly revise their earlier decision.

Political and Economic Instability in the Oil Producing Countries:

Geopolitical crisis, as is prevailing in the Middle East, is also one of the major factors that
determine the fluctuation in oil prices.

The disruption is oil production that was being globally contributed by major oil producing
countries of the world due to various reasons like, ongoing conflict in the Middle East,
crippling economic sanctions on Russia, re-imposition of sanctions on Iran by US and
political instability in Venezuela have begun to create an artificial scarcity of oil in the global
market.

In order to counter this threat, oil from countries like, US, Nigeria and Libya is now reaching
the global market.
Increased Production of US Shale Oil: Availability of cheap funds and advanced directional
drilling technologies has enabled US to extract crude oil from Shale wells.

US has huge Shale oil reserves and by way of perfecting its oil extraction technology, US has
managed to extract more oil per well and reduced the break-even for conventional oil by
nearly 50%.

President Trump has lifted a 40 year old ban on the export of American oil and hence, surplus
oil is likely to flood the global markets.

Thus, by increasing its oil production exponentially, it’s only a matter of time before US
starts determining the global oil prices rather than the OPEC.

Increased Interest Rate of US Bonds:

The higher rate of interest of dollar denominated bonds is becoming more attractive for
investors, thereby increasing the exchange value of dollars against other currencies.

Since, mainly the oil sales worldwide are denominated in dollars, a rise in the dollar means it
costs more in other currencies to buy a barrel of oil.

The gradually weakening rupee against the dollar is considered to be a major reason for the
continuous rise in oil prices in India.

Implications of Rising Oil Prices for India

 Adversely Affect India’s Economic Growth: India imports 82% of its oil requirements
and is the third largest consumer of oil after US and China.

 Economic Survey- 2018 estimates that for every increase of cost of oil by $10/barrel
the corresponding reduction in the GDP is 0.2 to 0.3% points.

 The survey has further forecasted that during the FY 2018-19, the price of crude oil is
likely to grow at an average of 12%. Hence, the GDP predictions for the 2018-19 may
remain difficult to achieve.

 Wholesale Price Index (WPI) Inflation will Increase: The cost of fuel is inbuilt into all
goods and services purchased. An increase in the global oil price will automatically
push the WPI and the Consumer Price Index (CPI) inflation higher.
 Hence, the price of every commodity is expected to further rise as the global price of
crude oil increases and the cost of living and sustenance is likely to go through the
roof.

 Current Account Deficit will Rise: The current account deficit (CAD) is a
measurement of a country’s trade, where the value of the goods and services it
imports, exceeds the value of the goods and services it exports.

 India’s FY19 current account deficit (CAD) could be $75 billion or 2.7% of the GDP
with oil at $80 a barrel average. It is considered that CAD above 2.5% is not
considered sustainable.
 Lose the Advantage of Reducing Fiscal Deficit: The gross fiscal deficit (total revenue
minus total expenditure), which includes interest payments, stands at 3.2%, of the
GDP, has been brought down from 4.5% of the GDP, ever since BJP government
came into power in 2014.

 In case the Modi government is able to further reduce the fiscal deficit, it will be in a
position to provide liberal tax cuts, offer populist schemes and distribute freebees to
the common man just before 2019 elections.

 However, if the oil prices continue to follow the current trend, this major advantage
with the BJP may be lost.
 Crude Oil Prices - Historical Annual Data

Average Annual
Closing Year Year Year Year %
Year Price Open High Low Close Change

2019 $53.62 $46.54 $57.26 $46.54 $56.07 23.48%

2018 $64.90 $60.37 $76.41 $42.53 $45.41 -24.84%

2017 $50.84 $52.33 $60.42 $42.53 $60.42 12.47%

2016 $43.58 $36.76 $54.06 $26.21 $53.72 45.03%

2015 $48.72 $52.72 $61.43 $34.73 $37.04 -30.70%

2014 $93.17 $95.14 $107.95 $53.45 $53.45 -45.55%

2013 $97.98 $93.14 $110.62 $86.65 $98.17 6.90%

2012 $94.05 $102.96 $109.39 $77.72 $91.83 -7.08%

2011 $94.88 $91.59 $113.39 $75.40 $98.83 8.15%

2010 $79.48 $81.52 $91.48 $64.78 $91.38 15.10%

2009 $61.95 $46.17 $81.03 $34.03 $79.39 78.00%

2008 $99.67 $99.64 $145.31 $30.28 $44.60 -53.52%

 Percentage analysis

1. Which of the crude oil products you are consuming in your house?

Particular Responds Percentage

Petrol 46 46%
Diesel 3 3%
LPG 19 19%
All the above 32 32%
Total 100 100%

Interpretation
Over 32% of the respondents are using all the crude oil products. 19% were using LPG &
46% were using petrol only. There is only 3% using diesel. Thus few people of them are
using all crude oil products that is why crude oil has such a big demand.

2. Which model of vehicle you are using?

Particular Responds Percentage

Two Wheeler 58 58%
Four Wheeler 6 6%
Both 36 36%
Total 100 100%
INTERPRETATION:
In this 36% of the respondents are having both two wheeler & three wheeler vehicles. 58% is
having two wheeler alone & only 6% is having four wheeler alone. Thus the does not are
using both two and four wheeler vehicles we can understand how much quantity of petroleum
is needed for fulfilling it.

3. What is the average consumption of petrol v/s. diesel in a month?

Particular Respond Percentage

Blow 50 liter 50 50%
50-100 liter 31 31%
100-500 liter 15 15%
Above 500 liter 4 4%
Total 100 100%
INTERPRETATION
31% of the respondents need 50 to 100 liters of petrol/diesel for a month. In this case they
need to spend Rs.3509.5 to Rs.7019 per month (@ 70.19/liter). 50% of them needs below
50litres. Only 4% needs above 500 liters of petrol every month.

4. Do you fix any special budgetary expenditure for petrol / diesel / LPG products every
month?

Particular Responds Percentage

Yes 31 31%
No 69 69%
Total 100 100%

INTERPRETATION:
Only 31% of respondents are putting a budget for petrol/diesel or LPG every month. Thus it
shows that these expenses became a budgetary expense to the people & they are well aware
of these situations.

5. Due to the price hike whether the actual expenditure stands within the budgetary
expenditure every month?
Particular Responds Percentage
Yes 59 59%
No 41 41%
Total 100 100%

INTERPRETATION

41% of these respondents are agreeing that due to this price hike their expenses are getting
higher and they can’t able to with stand their expenses in their budget

6. How frequently do you fill petrol / diesel for your vehicle?

Particular Responds Percentage

Daily 17 17%
Weekly 36 36%
Monthly 2 2%
As & When required 45 45%
Total 100 100%
INTERPRETATION
45% of the respondents agree that they are filling petrol as & when they required. 17% of
them need daily only 2% of the people required in monthly and remaining 36% needs once in
a week.

7. How much percentage of your income do you spend for crude oil
products in a month?

Particular Responds Percentage

Blow 5% 32 32%
5% -10% 40 40%
10% -15% 14 14%
Above 15% 14 14%
Total 100 100%
INTERPRETATION
40% of the respondents are spending 5 -10% of their salary for satisfying petroleum needs.
32% of them needs only below 5% of salary & 14% of them need 10-15% of their salary.
14% needs above 15% of their salary that becomes nearly 1/4th of the salary.

8. What is the monthly consumption of LPG gas in your house?

Responds Percentage
Particular
Below 1 30 30%
1 53 53%
2 14 14%
Above 2 3 3%
Total 100 100%

INTERPRETATION
53% of the respondents need 1 LPG cylinder in a month. 14% of them need 2 cylinders &
30% of them needs only less than 1 cylinder. 3% of them needs above 2 cylinders.

9. What do you feel about price hike of crude oil during the previous year (2018)?

Particular Responds Percentage

Affordable 48 48%
Not affordable 52 52%
Total 100 100%
INTERPRETATION

52% of the respondents agreed that it is not affordable for them. Only the remaining 48% are
ready to afford this.

10. In your opinion what is the reason for price hike of crude oil in India?

Particular Responds Percentage

Political effect 21 21%
Decrease in money 37 37%
value
Unavailability 22 22%
Increase in demand 20 20%
Total 100 100%
INTERPRETATION
As everyone knows the demand of petroleum is increasing day by day, the respondents also
agree with this situation. 20% of them agreed that the reason is increase in demand. 22% of
them agreed that as it is not renewable energy it is unavailable. From the remaining 21% they
say that it is due to political effect. Majority says 37% decrease in money value.

Finding
 The major reason for price hike of crude oil is that due to increase in demand. As the
number of vehicles & LPG increased there is much more need for satisfying it. But
due to the less reserve in the country and heavy import taxes the price rises
accordingly.

 Unavailability & decreased money value is also a major reason for this problem.

 Above 70% of the people are spending 5% - 10% of their salary for satisfying needs
relating to petroleum.

 Due to increases in fuel prices it has brought about a change in the production type of
vehicles in India as a lot importance is being given to fuel efficient vehicles.

CONCLUSION

One of the most important factors that decide the future of Indian economy is the price of
petroleum products. After all a small increase the price of this has got widespread impact on
the Indian Economy. If the price of petrol increases, it increases the transportation cost & the
cost of various products, thereby making the companies to increase the price of these
products. This causes inflation in the Indian market and the performance of the economy is
affected. Strong economic growth of India and other developing countries in Asia have
increased the demand of petrol and other related essential fuels, which has resulted in price
hike of petrol in India. The solution lies in finding an alternate source of energy. Though the
idea is good it is not a practical approach to this heavily discussed issue. Another solution
that can be implemented is to create awareness among public about the need to increase the
use of public transport. This is only viable solution in front of us.
Bibliography
Akansha Sanjay Jain, ,. N. (2015). Crude Oil Prices and Its Impact on Indian Economy. International
Journal of Social Science and Humanities Research, 562-572.

Aparna, A. (2014). Impact of Oil Prices on the Indian Economy. NMIMS Management Review, 141-
147.

Dr. K. Soundarapandiyan, D. M. (2017). An Analytical View of Crude Oil Prices and Its Impact on
Indian Economy. IOSR Journal of Business and Management (IOSR-JBM) , 23-28.

Firdous A Wani*, M. M. (2015). Impact of Crude oil on Indian Economy . International Journal of
Modern Management Sciences, 11-26.

KARUNAKARAN, S. (2014). Impact of crudeoil price on indian economy. COIMATORE: ECONOMY &
FINANCE.

SWADIMATH*, U. C., ANILKUMAR**, D. K., & JOSHI***, P. B. (2013). RISE & IMPACT OF CRUDE OIL
PRICE IN INDIA. International Journal of Marketing, Financial Services & Management
Research , 82-91.

Websites
https://www.slideshare.net/sarathkaran/impact-of-crudeoil-price-on-indian-economy

http://www.researchpublish.com/
 Appendix

1). which of the crude oil products you are consuming in your house?

Petrol

Diesel

Kerosene

LPG

All the above

2). which model of vehicle you are using?

Two Wheeler

Four Wheeler

Both

3). what is the average consumption of petrol v/s. diesel in a month?

Below 50 liters

50-100 liters

100-500 liters

Above 500 liters

4). Do you fix any special budgetary expenditure for petrol / diesel / Lpg products every
month?

Yes

No

5). Due to the price hike whether the actual expenditure stands within the budgetary
expenditure every month?

Yes

No
6). How frequently do you fill petrol / diesel for your vehicle?

Daily

Weekly

Monthly

As & when required

7). How much percentage of your income do you spend for crude oil products in a month?

Below 5%

5% - 10%

10% - 15%

Above 15%

8). what is the monthly consumption of LPG gas in your house?

Below 1

Above 2

9). what do you feel about price hike of crude oil during the previous year (2018)?

Affordable

Not Affordable

10). in your opinion what is the reason for price hike of crude oil in India?

Political effect

Decrease in money value

Unavailability

Increase in demand