An error occured. Details Hide
You have unsaved pages. Restore Cancel

Impact of Crude oil on Indian Economy:

India, the fastest growing economy in the world, was a key beneficiary of falling crude oil prices between 2013 and 2015, though domestic retail price remained more or less flat. India ranks 24th in oil production globally and produces 15% of the crude oil that is consumed domestically, whereas it stands at 3rd position in terms of consumption in the world after US and China. The increasing quantum of imports of crude oil has significant impact on Indian economy, especially when crude oil prices have risen now. The higher crude prices have been adversely affected the twin deficits, fiscal and current account deficits, and have spillover impact on monetary policy, consumption and investment pattern in the economy. Every $10 per barrel rise in the price is estimated to worsen fiscal balance by 0.1% and current account balance by 0.4% of GDP, as per Nomura estimate. With moderate average inflation of 4.17% in 2018 (Source: RBI, Y-o-Y July 2018), future inflation will depend on how the higher global oil prices are passed on to consumers. Though considering general election next year, it is difficult to envisage a significant world market price reflection in retail market prices and thus direct impact on inflation is likely to be moderate. The fall in the country’s crude oil production comes at a time when Indian rupee (INR) has depreciated to around INR 72 per US$ and oil import bill is expected to increase by 20 per cent to $105 billion in 2018-2019 on the back of recent rally in global oil prices. 

Current Trend in Crude oil Production and Import:

India’s crude oil production has been on downtrend from last six years and fallen to 35.68 million barrel in 2017-18. The fall in the oil production has pushed the country’s import dependence for crude further to 82.8 per cent in 2018 from 75.62 per cent in 2012 (Ministry of Petroleum and Natural Gas, GOI) and dampened the prospects of government’s plan to cut reliance on energy imports by 10 per cent through 2022. The fall in crude oil production coincides with the years in which oil prices slumped. Fall in production can be attributed to lack of investments in the sector during the low oil price period a couple of years ago. Crude oil production has been on a decline in nearly all offshore and onshore blocks, according to data from the Oil Ministry.

Government’s role in boosting production:

The New Exploration Licensing Policy (NELP) adopted in 1997–98 has done little to strengthen India’s energy security by ramping domestic production and finding new oil reserves. As the oil demand is increasing, country needs to boost domestic production and the current government has taken a step by introducing the Hydrocarbon Exploration and Licensing policy (HELP) in March 2016. The HELP aims to facilitate the oil sector by allowing 100 per cent participation by foreign companies in oil exploration, eliminating oil cess for those who are involved in oil exploration, single license for conventional and non-conventional sources. The government has allowed 100 per cent Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Whereas 49 per cent FDI allowed in petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs under automatic route. Looking at increasing energy demand, India has started looking alternative sources of energy. The Oil ministry has started looking at alternative source of energy such as bio-energy basket (ethanol, biodiesel, bio natural gas etc.) and wind energy. On the other hand GOI has taken several steps to make oil wells functional which have been shut and sick from long time to reduce the dependence on crude oil imports. 

Investment in Petroleum and Natural Gas Sector:

As per Department of Industrial Policy & Promotion (DIPP), the petroleum and natural gas sector attracted FDI inflow worth of US$ 6,879.69 million between 2000 and 2017, which is 1.87% of total FDI inflows in India during the period.

Download our latest ENERGY Data Brief

The Energy Data Brief offers key statistics designed to help energy market watchers anticipate and respond to developments in the energy sector as well as changes in related industries and investments.

Last updated: 

Are you sure you want to delete this page?

Are you sure you want to delete this document?

Unable to delete the page because it has shortcuts referencing it at the following locations:

    Please delete these shortcuts first, then delete page itself.

    Our Privacy Statement & Cookie Policy

    Our website uses cookies to improve your online experience. They were placed on your computer when you launched this website. You can change your personal cookie settings through your internet browser settings.

    Privacy Policy