India’s Oil Demand Growth: Have the Drivers Changed?

Following record high oil demand growth in 2015 (303,000 b/d) and 2016 (380,000 b/d), India’s demand growth in 2017 has been variable, falling by 89,000 b/d in the first quarter, recovering to 103,000 b/d in the second quarter, and witnessing the largest drop since 2003 in August, before recovering in September. Barring widespread flooding in August, these included policy-induced shocks – the demonetisation of 86% of currency in late 2016 and introduction of a new Goods and Services Tax (GST) in mid-2017 have hit business activity and consumption. Consequently, GDP growth forecasts for 2017 and 2018 have been pared down by the IMF to 6.7% and 7.4%. While these are still among the fastest in emerging markets, uncertainty remains over how quickly structural reforms will be consolidated in 2018 and whether further measures will be implemented to support a recovery. At the same time, India’s push for Electric Vehicles (EVs) will gain momentum in 2018, given its 2030 target to leapfrog over hybrids to an all-EV fleet, which the government estimates could save $60 billion in oil imports and reduce emissions by 37%. Against this context, this paper will explore to what extent the three original ‘drivers’ of India’s oil demand growth – namely, a rise in per capita oil consumption (reflected in rising motorization of the Indian economy), a massive programme of road construction, and a push towards increasing the share of manufacturing in GDP by 2022 – still hold.

By: Anupama Sen

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Oil

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