Abstract:
We examine the dynamics of crude oil demand, crude oil price, and economic growth over the period of
1997–2016 in case of India. We derive the results from DNS unit root test and it indicates that all variables are
stationary in their first order difference. Further, we apply Narayan and Popp (2010) two structure break test
and find two break points, one in January 2002 and another one in November 2011 in case of crude oil price.
Finally, the Structural VAR analysis depicts that there exists a negative and significant relation between crude oil
price dummy and crude oil demand over the period. Further, the price elasticity shows that the percentage
changes of crude oil demand response less as compare to the rise in crude oil price. This clearly suggests that
crude oil price is moderately inelastic. This overall implies that global crude oil price fluctuation has not brought
down India's crude oil import to a greater extent. In order to erase the bulging oil import bill, alternative
strategies of producing methanol blended oil, revival of sick oil well production, and adoption of phase wise
clean energy system could curb the import dependence of crude oil.
