Petroleum products’ consumption shows robust growth
According to Petroleum Planning and Analysis Cell data, petroleum products’ consumption in India for the June quarter rose 7.8% from a year earlier. Typically, the June quarter is slower than the rest of the year. For instance, in the June 2015 quarter, petroleum products’ consumption had increased 6.7% but for the entire fiscal year 2016, it had gone up 11% from a year earlier. Going by the trend, it’s likely that petroleum products consumption growth for FY17 could be better than last year. What’s more, the seventh pay commission is expected to boost consumption. That could mean more car sales, which in turn boosts petroleum products’ consumption.
If that happens, then the 2016 oil demand forecast for India by the International Energy Agency (IEA) could well be on the conservative side. IEA forecasts oil demand growth of 7.5% for 2016 (see chart).
However, on an overall basis, it may not amount to much for the Indian economy. True, petroleum products consumption data is a leading indicator of the performance of an economy. But the hard truth is that the investment demand component of gross domestic product (GDP) growth has not picked up. As Neha Saraf of Nomura Financial Advisory and Securities (India) Pvt. Ltd says, there is a narrow based recovery in GDP growth, led mainly by urban consumption and transportation services. But government capex has not picked up and private sector investment has been sluggish, she added. “The economic recovery continues to be characterized by a divergence between strong consumption and lacklustre investments; and robust services and sluggish industrial sector growth,” pointed out a Nomura report last month.