An Econometric Analysis of Relationship between Economic Growth and Petroleum Consumption in India

Abstract

The objective of this study is to examine empirically the relationship between the petroleum consumption which is a non-renewable and fast-depleting natural resource and economic growth for India for the period 1980–2014. The results obtained thereof act as the tools for the proper resource management and the environmental planning for sustainability. The study found that economic growth and petroleum consumption are cointegrated and hence there is a long-run relationship between the petroleum consumption and economic growth; conversely speaking, petroleum consumption has a significant impact on the economic growth of India in the long run. So the reduction of petroleum consumption if undertaken will have the serious repercussions on economic growth of India in the long run. The Granger causality test confirms that there is unidirectional causality running from petroleum consumption to economic growth in the short run but not vice versa. Hence, the study found that to achieve the dual goal of economic growth and environmental sustainability, the policymakers should focus on conserving the non-renewable petroleum resources. But at the same time, the investment in the renewable energy sector ought to be pursued so as to maintain the same level of energy consumption as well as achieve the sustainable development.