OPEC has emphasised that the Narendra Modi government is likely to continue supporting manufacturing in a bid to control inflation and unemployment, two factors that influenced the recently concluded elections to the 18th Lok Sabha.

Even as it expects continuity in economic policies in India, the world’s largest crude oil exporting bloc in its latest monthly oil market report for June 2024 opined that coalition governments introduce “uncertainty”.

“While a continuation of economic policies is expected, coalition governments inherently introduce additional uncertainty. The government is likely to persist in supporting manufacturing and industrial output, possibly with a heightened focus on addressing unemployment and inflation, factors that influenced the election outcome,” it added.

Elections to the 18th Lok Sabha, which concluded this month, witnessed the National Democratic Alliance (NDA) securing 293 seats with the Bharatiya Janata Party (BJP) emerging as the single largest party securing victories in 240 parliamentary constituencies, but fell short of the majority mark of 272.

Expanding economy

OPEC report pointed out that following a period of market turbulence and subsequent recovery, the Indian stock market stabilised post-elections.

Industrial activity, bolstered by Production-Linked Incentive (PLI) schemes, is projected to endure. The services sector is anticipated to sustain growth momentum, buoyed by an expanding middle class and decreasing unemployment.

“Election-related expenditures likely provided an economic boost this year, with the prolonged voting period generating significant spending on political campaigns and pre-election initiatives, particularly in rural regions,” OPEC said.

Inflation remains a notable concern in India, especially food inflation. The weak monsoon season in late 2023 primarily drove supply shortages and subsequent price hikes, it added.

“As the monsoon season commences this month and extends through September, preliminary forecasts from the India Meteorological Department (IMD) suggest a stronger-than-average year, although uncertainties persist. Overall, agricultural output is expected to rebound, potentially leading to a slowdown in food inflation by year-end,” the oil exporting bloc said.

Rising oil demand

OPEC projects that current strong economic growth amid a positive outlook for manufacturing activity and investments is expected to bolster oil demand in the second half of 2024 calendar year to grow by 0.2 million barrels per day (mb/d) Y-o-Y on average.

Oil demand is also likely to receive a boost from a cut to retail gasoline and diesel prices by around Rs 2 per litre ($3.80 per barrel) from 15 March to boost consumer spending and reduce vehicle operating costs. India is also expected to witness a normal monsoon this year, which will help support a good agricultural harvest.

Overall, these factors are expected to bolster India’s oil demand. Additionally, the country’s annual traditional festivities are set to support transportation activity and boost gasoline demand. Finally, the ongoing air travel recovery is anticipated to support jet/kerosene demand.

“In 2024, India is expected to see healthy oil demand growth of 233,000 b/d, Y-o-Y, for an average of 5.58 mb/d,” OPEC said.