Dissertation Presentation Impact of Import Driven Indian Oil Industry

DISSERATION FOR THE DEGREE OF MBA OIL AND GAS
A STUDY OF IMPORT DRIVEN INDIAN OIL & GAS INDUSTRY

AND ITS IMPACT ON INDIAN ECONOMY
Submitted by supervised by
AVINASH MURALA GANDHARVA BHUTANI
2017
A STUDY OF IMPORT DRIVEN INDIAN OIL & GAS INDUSTRY AND ITS IMPACT ON INDIAN
ECONOMY
Contents
Executive Summary
Chapter 1: Introduction
Chapter 2: Literature Review
Chapter 3: Research Design, Methodology & plan
Chapter 4: Findings & Analysis
Chapter 5: Interpretation of Results
Chapter 6: Conclusion and Scope for Future Work
Appendix
ECONOMY
Executive summary
India is the fastest growing economy in the word, the energy sector is its
prime moving factor and it fuels growth. The demand for energy grows
alongside the economy. India is the fourth largest country in terms of energy
consumption and imports 81% of the total crude oil needs. Increase in global
demand, depleting reserves, rising geopolitical risks and increasing burden
on fiscal deficit due to import bills etc. poses threats to the Indian growth
story. Therefore, There lies an immediate need to explore ways to meet the
demand and make India energy self sufficient nation.
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ECONOMY
Chapter 1: Introduction
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Introduction
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. In the current scenario of oil production and consumption,
demand for crude oil is more than the existing supply. In Developing country
like India, domestic supply accounts for 20% of crude oil requirement and
depends on imports for the rest. Therefore, we are vulnerable to demand
driven price rise and/or price rise due to supply disruption.
Under such circumstances it is very much essential to study the impact of
crude oil price on the inflation and economic growth of our country.
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ECONOMY
The objectives of the study

1. To study and formulate the impact of crude oil prices on the whole sale
price index of Indian economy.
2. To study the inflation rate (consumer price index) due to change in crude
oil prices on the GDP growth of Indian economy
3. To examine and understand the direction of causality and to search and
ascertain the causal relation and linkage between differential change rate
of crude oil prices and Inflation, also between inflation vis--vis GDP
growth of Indian economy.
4. To study the impact of energy price relative to the productivity of capital
and labour of Indian industries based on the past data.
5. The purpose of this document is to provide the necessary tools to
decrease the foreign crude dependency and develop Indian reserves, in
an effective manner in a defined time frame.
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Chapter 2: Literature Review
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Energy Sector overview
Globally, Oil and Natural gas constitutes more than 50% of the total
energy consumption mix.
In Indian, oil and natural gas accounts for around 66% of the total
energy consumption.
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Energy Sector overview
India is the third largest crude importer, nearly 81% of the total crude oil &
18% of natural gas needs comes from imports
According to BP statistical review, demand for energy consumption will
grow at a rate of 4.2% p.a till 2035.
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ECONOMY
Indian Scenario
The Inadequate infrastructure in the upstream Oil & gas due to
underinvestment has led to stagnation of production and limited the
participation of foreign and private players.
Indias energy future remains hidden in unexplored in difficult-to-access
basins across the country.
India has surplus refining capacity and is the exporter of finished
petroleum products, the total refining capacity in 2016 stood at 230 mtpa.
8
Limitations ECONOMY
The demand for crude oil is at its highest and projected to grow more in
the coming decades with emerging nations increasing their share.
Demand surpassing the supply, According to IEA production from exiting
oil fields declining at an annual rate of 5.2%.
Growing dependency on OPEC nations, India's 84% of crude oil and 94% of
natural gas imports come from OPEC.
The worlds reserves are depleting and the production companies are
headed towards development of non-conventional reserves which are
difficult-to-access fields.
The development of non-conventional reserves require huge capital and
major advances in technology for exploration and production to meet the
global oil demand. Availability of these resources are uncertain.
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Impact of Oil Prices on Indian Economy
With domestic production accounting for only 20% of the total oil needs
India need to depend on foreign crude to cater the demand, which makes it
vulnerable to disruptions in global Oil markets.
With rise of 1$ per barrel increases the total import bill by $1.2 billion,
which leads to depletion of FOREX.
The increase in oil price by $10 per barrel could potentially slow Indias
GDP growth by 0.2% and may inflate the current account deficit by 0.4%.
Any hike in price of imported crude oil is absorbed by the OMCs along with
the Upstream Oil Companies & the government. The fuel subsidy bill has
witnessed a continuous rise for the past few years.
Rise in crude oil prices worsens the situation as Government has to spend
more money in the form of fuel subsidy to OMCs.
1
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Chapter 3: Research Design,

Methodology & plan
1
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Research Design
Includes steps of data collection, sample selection, process of data and
finally interpretation of the data.
Source of data
Secondary data sources have been used to collect information about the
Indian crude basket prices, whole sale price index, Inflation rate and GDP
growth.
Central Statistical Organization (CSO) data of Indian Economy, RBI reports,
Indian Economic survey reports, Petroleum Planning and Analysis Cell
(PPAC) data
Methodology & plan
the study is to examine whether crude oil price affect inflation, the Rate of
change in crude oil price affect inflation rate and GDP growth and what is
the extent of impact.
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Factors Critical to the Study

Price of Crude Oil
Refers to the spot price of a barrel of benchmark crude oila reference
price for buyers and sellers of crude oil such as West Texas Intermediate
(WTI), Brent ICE, Dubai Crude, OPEC Reference Basket
Inflation
Inflation is a sustained increase in the general price level of goods and
services in an economy over a period of time. When the price level rises,
each unit of currency buys fewer goods and services, inflation reflects a
reduction in the purchasing power per unit of money.
There are two type of inflation- namely Whole sale price index (WPI) and
Consumer price Index (CPI).
1
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Factors Critical to the Study

Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is a monetary measure of the market value
of all final goods and services produced in a period. Nominal GDP
estimates are commonly used to determine the economic performance of
a whole country or region, and to make international comparisons. It is
considered one of the most important measures of how well or poorly an
economy is performing.
Economic growth rate = {(GDPyear2 GDPyear1) / GDPyear1 } * 100
Change in crude oil prices, Inflation and GDP growth rate of the past
decade is considered for the study
1
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Chapter 4: Findings & Analysis
1
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Pearson Correlation Coefficient

ThePearson correlation coefficientis a statistical formula that measures
the strength between variables and relationships. It is often referred to as
thePearson R test. When conducting a statistical test between two
variables, Pearson correlation coefficient value can be used to determine
the strength of the relationship is between those two variables.
Where, N = numbers of the observations
The Pearson Correlation coefficientXY

is =used
Sum of the products of paired
to determine the relationship
variables.
and the strength between price of crude oil and WPI Inflation
X = Sum of X variables
Y = Sum of Y variables
X = Sum of squared X variables.
Y = Sum of squared Y variables.
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Multi variable regression

Multivariable regression analysis is a statistical technique for estimating
relationship among variables. Regression analysis helps to understand how
the typical value of the dependent variable (or 'criterion variable') changes
when any one of the independent variables is varied, while the other
independent variables are held fixed. When a dependent variable (Y) is a
function of more than one independent or exploratory variable, it is called
multivariable regression.
r12,3
It is used to analyse = understand
and r12 - r13. r23 / sqrt{1-(r13)2}.
the impact of both crude oil price
sqrt{1-(r23)2}
change rate and inflation rate on GDP growth.
r13,2 = r13 - r12. r23 / sqrt{1-(r12)2}.
sqrt{1-(r23)2}
r23,1 = r23 - r12. r13 / sqrt{1-(r12)2}.
1 sqrt{1-(r13)2}
Granger causality
Granger causality is a way to investigate

ECONOMY causality between two variables
in a time series.
Granger causality, helps to understand is ifa particular variable comes
before anotherin the time series.
Here, Granger Causality assumes that the information relevant to the
prediction of GDP growth and inflation rate, inflation rate and rate of
change in crude oil price.
The F test
An F test, based on the F probability distribution, can be used to test for
significance in regression, the F test will also indicate a significant
relationship. With more than one independent variable, only the F test can
be used to test for an overall significant relationship.
The F-statistic is simply a ratio of two variances. Variances are a measure

of dispersion, or how far the data are scattered from the mean. Larger
1 values represent greater dispersion.
ECONOMY
Chapter 5: Interpretation of Results
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Hypothesis 1
H01: Crude oil price plays an insignificant role in rising WPI of Indian
economy.
H11: Crude oil price plays a significant role in rising WPI of Indian economy.
With Karl Pearson Coefficient r=0.829, there is a positive correlation

between crude oil price and WPI.
From analysis of variance and F-Test, derived a low F value of 3.89
which proved that smaller dispersion from the mean.
Hence, Hypothesis H01 is rejected and H11 is accepted.
Crude oil price plays a significant role in rising WPI of Indian

economy.
2
ECONOMY
Hypothesis 2
H02 : The role of Inflation is insignificant for declining GDP growth of Indian
economy.
H12 : The role of Inflation is significant for declining GDP growth of Indian
economy.
With Karl Pearson Coefficient r= -0.829, there is a negative correlation

between GDP growth and Inflation.
From analysis of variance and F-Test, derived a F value of 4.41 which
proved that smaller dispersion from the mean.
The role of Inflation is significant for declining GDP growth of

Indian economy.
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Hypothesis 3
H03 : Crude oil price rate change does not Granger cause inflation.
H13 : Crude oil price rate change Granger causes inflation.
Hence, Hypothesis H03 is rejected and H13 is accepted
Crude oil price rate change Granger causes inflation
2
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Hypothesis 4
H04 : Inflation does not (Granger) cause GDP Growth.
H14 : Inflation (Granger) causes GDP Growth.
GDP growth (Granger) Causes Inflation.
2
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Hypothesis 5
H05 : A rise in the price of energy relative to output does not lead to decline
in productivity of existing capital and labour.
H15 : A rise in the price of energy relative to output leads to decline in
productivity of existing capital and labour.
Based on the regression analysis it is evident that there is significant
negative relationship between the energy price relative to output
productivity of capital and labour.
From analysis of variance and F-Test, derived the F critical as 3.41 which
proved that smaller dispersion from the mean.
A rise in the price of energy relative to output leads to decline in

productivity of existing capital and labour.
2
Chapter 6: Conclusion & Future scope

ECONOMY
1. To increase domestic production by attracting investments, both private
and public in the upstream sector through investor friendly policies. So that
India can leverage their skills, expertise and technological capabilities.
2. Taking all steps to increase the production from NOCs (National Oil
Companies) assets including their maturing field.
3. Equipping domestic refining industry both existing and planned to
successfully meet the quality of producing fuels complying with prescribed
environment friendly specifications for export hub of petroleum products to
earn foreign exchange.
4. Encouraging energy conservation through campaigns aimed at sensitizing
the people about the significance of efficient use of energy.
5. Towards Energy Security: As Indias economy continues to grow, so will its
need for energy security. By adopting various strategies for
nonconventional and green energy and also alternative forms of energy in
the form of renewable energy and nuclear power as a diversification to
ensure energy security.
2
ECONOMY
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DISSERATION FOR THE DEGREE OF MBA OIL AND GAS

A STUDY OF IMPORT DRIVEN INDIAN OIL & GAS INDUSTRY

The objectives of the study

Chapter 2: Literature Review

Chapter 3: Research Design,

Factors Critical to the Study

Factors Critical to the Study

Economic growth rate = {(GDPyear2 GDPyear1) / GDPyear1 } * 100

Chapter 4: Findings & Analysis

Pearson Correlation Coefficient

The Pearson Correlation coefficientXY

Multi variable regression

Granger causality is a way to investigate

The F-statistic is simply a ratio of two variances. Variances are a measure

Chapter 5: Interpretation of Results

With Karl Pearson Coefficient r=0.829, there is a positive correlation

Crude oil price plays a significant role in rising WPI of Indian

With Karl Pearson Coefficient r= -0.829, there is a negative correlation

The role of Inflation is significant for declining GDP growth of

Hence, Hypothesis H03 is rejected and H13 is accepted

Crude oil price rate change Granger causes inflation

GDP growth (Granger) Causes Inflation.

A rise in the price of energy relative to output leads to decline in

Chapter 6: Conclusion & Future scope

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