Does Ethanol Blended Petroleum Program modulate Current Account Deficit in India

Abstract

This article provides a detailed theoretical and empirical justification for the effectiveness of the Ethanol Blended Petroleum (EBP) program in India in the context of reducing the burden of Current Account Deficit (CAD). The most important research issue is whether the increase in ethanol blending in petroleum reduces the burden of the current account deficit via decreasing oil import bills or not. In order to capture the effect of the EBP program in India, the study uses data on the percentage of ethanol blending in petroleum since the launch of the program, the Oil import bill and the current account deficit. For analysis, the study has applied the Augmented Dickey-Fuller Test, Granger Causality, Regression model and descriptive statistical methods. The descriptive statistical trend line analysis proved the success of the EBP program in India which is observed using the increasing percentage of ethanol blend in vehicular petroleum. As a result of the implementation of the EBP program, the study has observed a constant trend for oil imports and current account deficits even though there was a huge increase in per capita income and automobile sales during the study period. Granger causality test result observed bi- directional causality indicating that the EBP program has a significant impact on oil imports and the current account deficit in India. The regression results also validated Granger causality results by detecting that the EBP program had a significant impact on CAD in India. Finally, the study concludes that the effect of the Ethanol Blending Petroleum Program on the oil Import Bill is effective in curtailing the current account deficit in India. The E20 (Ethanol blending 20 per cent) initiative will have a significant impact on the current account deficit in India. Hence, the government of India must relax the legal issues relating to the production of ethanol from sugarcane and speed up the process of ethanol blending in petroleum products.