OPEC stressed that the Narendra Modi government is likely to continue supporting the manufacturing sector to curb inflation and unemployment, two factors that have influenced the recently concluded 18th Lok Sabha elections.
The world’s largest crude exporting bloc expects continuity in India’s economic policies but said a coalition government would bring “uncertainty” for June 2024, it said in its latest monthly oil market report.
“We expect a continuity in economic policy, but a coalition government inherently brings further uncertainty. The government is likely to continue supporting manufacturing and industrial production, but may focus more on tackling unemployment and inflation, factors which influenced the election outcome,” it added.
In India’s 18th Lok Sabha elections that ended this month, the National Democratic Alliance (NDA) won 293 seats, while the Bharatiya Janata Party (BJP) won in 240 constituencies to become the single largest party, but fell short of the 272 seats needed for a majority.
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Expanding economy
The OPEC report noted that after periods of market turmoil and subsequent recovery, India’s stock market had stabilised after the election.
Industrial activity, boosted by the Production Linked Incentive (PLI) scheme, is expected to sustain. The services sector is expected to maintain growth momentum, supported by an expanding middle class and falling unemployment.
“Election-related spending likely boosted the economy this year, as the prolonged voting period led to heavy spending on political campaigns and pre-election efforts, especially in rural areas,” OPEC said.
Inflation, particularly food inflation, remains a major concern in India, the company added, citing a weak monsoon season in the second half of 2023 as the main driver behind supply shortages and associated price hikes.
“As the monsoon season begins this month and continues through September, preliminary forecasts from the India Meteorological Department (IMD) suggest that it will be a stronger than average year, though uncertainties remain. Overall, agricultural production is expected to recover, which could lead to a slowdown in food inflation by the end of the year,” the Federation of Petroleum Exporting Countries said.
Increasing demand for oil
OPEC forecasts that current strong economic growth amid a brightening outlook for manufacturing activity and investment will see oil demand rise by an average of 200,000 barrels per day in the second half of 2024 from a year earlier.
A cut in retail gasoline and diesel prices by about 2 rupees a litre ($3.80 a barrel) from March 15 is expected to boost consumer spending and reduce the cost of running vehicles, boosting oil demand. India is expected to have a normal monsoon this year, which should lead to a bumper crop.
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Overall, these factors are expected to boost oil demand in India. Additionally, the country’s annual traditional festivals are expected to support transport activity, boosting gasoline demand. Finally, the ongoing recovery in air travel is expected to support jet/kerosene demand.
“India’s oil demand is expected to grow at a healthy pace, averaging 5.58 million barrels per day in 2024, up 233,000 barrels per day from the previous year,” OPEC said.
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