Does energy consumption fuel economic growth in India

The paper examines whether energy use drives economic growth \nor vice versa in the Indian context during the period 1970-71 to \n2004-05. Utilizing the Granger causality test, the study suggests that it \nis the economic growth that fuels more demand for both crude oil and \nelectricity consumption and it is the only growth of coal consumption \nthat drives economic growth. When influence of different components \nof energy on major two components of economic growth is investigated \nwith the same causality test, none of the energy components found to be \nsignificantly influencing the two components of economic growth viz. \nprivate consumption and private investment. In contrast, the out of sample \nforecasts in the variance decomposition analysis of Vector Autoregression \n(VAR) suggests that there could be a bi-directional influence between \nelectricity consumption and economic growth, other results remaining \nunchanged. Therefore, the study yields mixed and contradictory result \nas compared to the previous studies in the Indian context. However, on \nthe basis of application of two econometric tools, the study with little \nmore conviction could suggest for reducing crude oil and natural gas \nconsumption at least in the consumption sectors which don't directly \ncontribute to production or add to the capital formation of the economy, \nfor achieving higher rate of growth in the economy. \nKeywords: Energy Consumption, Economic Growth, Granger \nCausality, VAR & India \nJEL Classifications: C32, E21, O11, Q43