CRUDE OIL IMPORT ELASTICITY OF DEMAND IN INDIA: AN EMPIRICAL ANALYSIS 1987-2016

Rashmi Ranjan Paital, Subhendu Dutta () and Aruna Dash ()

Applied Econometrics and International Development, 2019, vol. 19, issue 2, 125-136

Abstract: This study analyses the crude oil import elasticity of demand during 1987-88 to 2016-17 by using Auto Regressive Distributed Lag (ARDL) cointegration technique. By using macroeconomic variables such as real crude oil price and real GDP an attempt is made to determine the long-run and short-run elasticities of crude oil demand in Indian context. In our empirical analysis, we found that the long-run income elasticity coefficient was found to be statistically significant with expected sign. It was found that the crude oil import demand is highly elastic to income in the long-run suggesting that a one percentage increase in GDP of India leads to a 2.89 percentage increase in crude oil import demand. It was also revealed that the responsiveness of international crude oil price changes in import demand are insignificant. We can say crude oil demand in India is very sensitive to income rather than price changes.One of the reasons might be full control of the retail price of the petroleum products by the Government of India during our study period. Indian government fully regulated the petroleum prices for which any changes in international crude oil price have not reflected the Indian retail price. Another reason is that as a growing economy, the government needs to import large quantities of crude oil irrespective of price changes to meet the rising domestic demand. The paper suggests that there is a need for a policy framework for reducing the domestic crude consumption and exploring alternative energy sources.

Keywords: Crude oil elasticity of demand; Income and price elasticity; ARDL; India. (search for similar items in EconPapers)
JEL-codes: C32 Q41 Q43 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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