India set to surpass China to become second-largest oil demand centre in 2019 - Pragnya IA Academy - News Analysis.

India set to surpass China to become second-largest oil demand centre in 2019.

Highlights:
• India's oil demand growth recovered strongly in 2018 overcoming the effects of GST and demonetisation
• India contributed 14% of the global demand growth, or 2,45,000 barrels per day last year
India will surpass China to become the second-largest oil demand growth centre globally in 2019 on the back of buoyant auto fuel and LPG consumption, research and consultancy group Wood Mackenzie said on Tuesday.

In a report, Wood Mackenzie said India's oil demand growth recovered strongly in 2018, overcoming the aftermath of the implementation of the Goods and Services Tax (GST) and demonetisation, and contributed 14% of the global demand growth, or 2,45,000 barrels per day.
"We forecast oil demand to grow at the same level in 2019. This will result in India becoming the second largest demand growth centre globally in 2019, behind the US, but ahead of China. Transport fuels — gasoline and diesel — and residential LPG will continue to be the two main drivers of oil demand growth," the report said.
According to the US Energy Information Administration (EIA), India is currently ranked behind the US and China as the world's third-largest oil consumer. It consumed 206.2 million tonnes (over 4 million bpd) in 2017-18.
During April-December, consumption of petroleum products stood at 157.4 million tonnes, up 2.5% over the year-ago period.
Last August, the Organisation of Petroleum Exporting Countries (OPEC) projected India's oil demand to rise by 5.8 million barrels per day (bpd) by 2040, accounting for about 40% of the overall increase in global demand during the period.
Mackenzie said diesel, the most consumed fuel in the country, is projected to grow by 6.4%, or 1,12,000 bpd year-on-year in 2019, compared with 93,000 bpd in 2018.
This was because of "buoyant commercial vehicle sales facilitated by sustained infrastructure growth, and increasing demand from the construction, logistics, e-commerce and consumer goods sectors," it said.
Also, the push will come from a demand-based approach instead of a tax-based approach in the logistics sector, following the implementation of the GST, which led to the removal of inter-state taxes. "This is a structural shift, resulting in increased demand for heavy and medium-duty trucks to achieve economies of scale and operational efficiency."
More importantly, general elections in May will lead to increased travel activity for campaigning and implementation of infrastructure projects, which will bolster demand in the first half of 2019, Mackenzie said.
"Key risks ensue as crude price volatility is expected to persist. Historically, short-term gasoline demand has been relatively inelastic to retail prices in developing economies such as India. Even though higher retail prices affect consumer sentiment for new vehicle purchases, we believe this trend will continue with income effects driving the demand, subduing the price effects."
LPG demand growth will remain robust in 2019 at 5% (40,000 bpd), lower than the 56,000 bpd growth achieved in 2018. "The number of new household LPG customers continued to surge, driven by the Ujjwala scheme to promote clean cooking fuel in rural areas. That said, there is a largely untapped market, as around 50 million households remain deprived of LPG."
On the use of electric vehicles, it said only 2,60,000 EVs had hit Indian roads, the majority being two-wheelers.
"Electric car sales, for instance, declined by 40% to a mere 1,200 units in 2017-18 over 2016-17, while electric two-wheeler sales rose 138% to 54,800 units during the same period. In contrast, China had a stock of 1.8 million EVs and 258 million e-bikes at the end of 2018," it said.
This year, Mackenzie said, will be an important year since the final version of the National Auto Policy and the second phase of the FAME scheme will be released.
"The question is the timing — will it be before or after the elections? Will the Modi government change tack if it is not re-elected? Will this ambiguity continue to deter wider adoption? Automakers seem to have realised that EV adoption is not a question of 'if'. Maruti Suzuki, for instance, will launch an electric version of one of its best-selling entry-segment cars — the Wagon R — in Q1 2019."
Another key challenge will be stakeholder management and coordination across different ministries, government bodies and industry participants, while the policy is formalised.
Stating that two-wheelers will dominate the electric mobility landscape in the personal transport sector, it said India offered huge potential for automakers since car ownership levels were very low (23 per 1,000 capita).
Rising income levels will increase car ownership and most global automakers are closely eyeing the Indian market. At the same time, two-wheelers should not be ignored — with current ownership six times larger than four-wheelers.
"We believe that two-wheelers are the more effective option, given their utility in intra-city travel, less need for public charging infrastructure and availability of battery technology. Two-wheelers will eventually leapfrog four-wheelers towards the goal of a greener and sustainable mobility future."(Source:Livemint)


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India set to surpass China to become second-largest oil demand centre in 2019.

India to hold top spot for economic growth but oil poses risk - Pragnya IAS Academy - News Analysis.

India to hold top spot for economic growth but oil poses risk.

India will remain the fastest-growing major economy this year supported by increased government spending ahead of next year's general election, but rising oil prices pose the biggest downside risk, a Reuters poll of economists showed.

The over $2 trillion economy, which surpassed France recently to become the world's sixth-largest economy, is expected to grow 7.4 percent in the fiscal year ending in March 2019 and 7.6 percent next, according to average forecasts in the latest poll of nearly 70 economists, taken July 19-24.
In contrast, analysts in the most recent Reuters poll expect China's economy, the world's second largest, to grow 6.6 percent this year.
But record high costs of diesel and petrol - which are the biggest items on India's import bill - at a time when the rupee is weakening and close to a record low has become a major burden, posing a risk to those forecasts.
Over 60 percent of 41 economists who answered an additional question on risks to the outlook said the recent rise in oil prices was the biggest threat, as that would increase the prospect for more interest rate hikes by the Reserve Bank of India.
"We think that for every 10 dollar rise in oil prices, India growth declines by 30-40 basis points. This impacts growth by lowering consumption and raising input costs," said Shashank Mendiratta, economist at ANZ.
India's economy has started to recover after a slowdown caused by a ban on high-value currency notes in November 2016, followed by the hasty implementation of a goods and services tax (GST) in July last year.
Indeed, growth has been accelerating over the past year from a low of 5.6 percent to above 7 percent in recent quarters.
But, while the quarterly growth outlook for India is relatively steady through to the end of next year, it is not expected to match or surpass the 7.7 percent rate reported for the latest quarter.
"Relatively higher interest rates, high oil prices, uncertainties on the exchange rate, gradually building up political risks from the 2019 elections - are all headwinds that can slow down the growth momentum," noted Samiran Chakraborty, senior economist at Citi.
"Much will depend on the extent of (government) spending in fiscal year 2019 and its multiplier effect on the rural economy."
The consensus for growth has remained largely unchanged for almost a year in Reuters polls, despite worries about escalating trade disputes, which has dented confidence among economists surveyed on most other major economies.
Indeed, the Reuters poll growth forecast for India this fiscal year is now a touch higher than the International Monetary Fund's projection, at 7.3 percent.
Some respondents also said the trade dispute between the United States and its trading partners will have only a minimal impact on the Indian economy, compared to others in the region.
"The big concern for many economies in Asia at the moment is the growing protectionist threat from the U.S. It is difficult to know how events will unfold, but the key point for India is that it doesn't look particularly exposed to a more protectionist U.S.," noted Shilan Shah, senior India economist at Capital Economics.
TWO CONSECUTIVE HIKES?
The latest Reuters consensus was for India retail inflation to average 4.9 percent in the year ending March 2019, up from 4.7 percent predicted just three months ago.
While inflation has been above the RBI's medium-term target of 4 percent for eight months and is expected to stay that way through to the end of 2019, economists in the poll were almost evenly split over the next rate hike.
Thirty-seven of 63 economists said the RBI will raise rates again in August and 22 respondents said the next rate hike would come by end-2018 or in the January-March quarter next year.
While one economist still expects a hike in the third quarter of next year, the remaining three respondents do not expect any change until end-2019.
That suggests, several economists have merely brought forward their expectations for tightening compared to the poll taken ahead of the central bank's June meeting, when the median consensus was for a hike in the last quarter of this year, followed up by an increase in early 2020.
"We had previously expected the start of the rate hike cycle in Q4 2018. However, reflecting this earlier than expected move (in June), we now expect the rate hikes to be front-loaded," noted Morgan Stanley.
If the RBI does raise rates next month, it would be the first time since October 2013 that the central bank has hiked borrowing costs at two consecutive policy meetings. (Source: The Economic Times) (Article Related to GS paper-3 Economics)


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India to hold top spot for economic growth but oil poses risk.