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Examination of oil import-exchange nexus for India after currency crisis

Sinha, Avik (2017): Examination of oil import-exchange nexus for India after currency crisis. Published in: International Journal of Green Economics , Vol. 11, No. 2 (2017): pp. 107-121.

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Purpose: This study looks into the nexus between crude oil import and dollar-rupee exchange rates for India, considering monthly data from April, 1992 to March, 2014. Through this study, we intend to assess the economic and ecological sustainability of India, from the perspective of crude oil import behavior and balance of payment condition.

Methodology: Multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) models have been applied for looking into the effect of oil import behavior on the exchange rate.

Findings: The study discloses that the rise in the oil import leads to depreciation of dollar-rupee exchange rate. It also tells that the impacts of positive and negative shocks on exchange rate volatility have asymmetric consequences, and oil import fluctuations have undeviating effect on exchange rate volatility.

Practical/Policy Implications: Import substitution for crude oil should be implemented in India in a phased manner. Providing renewable energy sources to the households at a subsidized rate, and recovering the price differential from the industrial sector in the form of economic rent on crude oil can be a solution to this situation. Implementation of this phased substitution policy will be not only be sustainable, but will also comply with the inclusive growth paradigm of India.

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