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Impacts of Falling Crude Oil Prices and Reduction of Energy Subsidies on the Indian Economy: A CGE Modelling Approach

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  • Amrita Ganguly
  • Koushik Das

Abstract

This study analyzes the impacts of international crude oil fluctuations and energy subsidy (on LPG, petrol and diesel) removals on Indian economy. We have applied computable general equilibrium (CGE) modelling as our relevant methodology, following Shoven and Whalley ( J Econ Lit XXII: 1007–1051, 1984) based on energy social accounting matrix (ESAM) of India for the year 2007 – 2008. It is seen that the international crude oil price fluctuations has a greater effect in determining gross domestic product (GDP) and exchange rate as compared to the effect of energy subsidy removal. With decrease in international crude oil price, GDP increases and exchange rate appreciates. On the other hand, with decrease in energy subsidy, GDP decreases and exchange rate appreciates. Moreover, with introduction of direct cash transfer scheme in lieu of subsidy for LPG, it is seen that the impact on demand of LPG (substitution effect) is negligible indicating that LPG is an essential commodity.

Suggested Citation

  • Amrita Ganguly & Koushik Das, 2016. "Impacts of Falling Crude Oil Prices and Reduction of Energy Subsidies on the Indian Economy: A CGE Modelling Approach," Vision, , vol. 20(4), pages 345-360, December.
    • Handle: RePEc:sae:vision:v:20:y:2016:i:4:p:345-360
    DOI: 10.1177/0972262916668741
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    References listed on IDEAS

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