Future demand of petroleum products in India

This paper examines the long-run equilibrium relationship between total petroleum products consumption and economic growth in India for the period 1970–1971 to 2001–2002 using cointegration and error-correction modeling approach. Augmented Dickey–Fuller tests reveal that both the series, after logarithmic transformation, are non-stationary and individually integrated of order one. The empirical results suggest that the series are cointegrated. The ‘long-term demand elasticity for petroleum products’ has been estimated. Furthermore, as a special case, similar sort of exercise between the consumption of middle-distillates and economic growth in India using annual data for the time span 1974–1975 to 2001–2002 has been carried out, which also confirms the existence of cointegration. In-sample forecasts fitted well against actual numbers. Finally, the paper forecasts total petroleum products and middle-distillates demands till 2011–2012 and provide an idea about the investment required in refinery sector in India till 2011–2012.