India's economic recovery termed key for oil sector

India's economy is suffering its worst cyclical downturn for more than a decade, which is weighing heavily on global oil consumption, and until the economy improves, prices are unlikely to see a sustained increase.

If the monetary and fiscal stimulus succeeds in pushing the economy out of its current trough, faster growth would play an important role in rebalancing the oil market in 2020.

Between 2008 and 2018, India's oil consumption increased at an annual average rate of just over 5 per cent or an extra 200,000 bpd each year.

The South Asian giant accounted for 15 per cent of all the growth in petroleum consumption worldwide over the last decade. Only China was a more important source of incremental demand.

The health of India's economy is therefore crucial to the evolution of the production- consumption balance, and at the moment the economy is very sick. Like most middle- income countries, measuring the size of India's economy and its growth rate, accurately and in real time, presents formidable challenges.

But hard data on auto sales and electricity generation point to an economy currently experiencing a severe slowdown or outright recession.

Passenger vehicle sales have been falling this year at the fastest rate for more than two decades, down by around 8 per cent between September and November compared with the same period a year earlier, according to the Society of Indian Automobile Manufacturers.

Plunging vehicles are both a symptom of economic stagnation and contribute directly to slower growth in demand for road fuels. Electricity generation, another real- time proxy for economic growth, is also falling at the fastest rate for well over ten years, according to data from the Central Electricity Authority.

Meanwhile, Indian Finance Minister Nirmala Sitharaman dismissed questions on a time period on the uptick probability of the economy amidst rising inflation, contracted factory output and second- quarter GDP growth falling to 4.5 per cent saying she would continue to intervene in the economy when and wherever needed.

"I am not engaging in any prediction based questions, neither will I answer speculations. I am looking at the economy and I will continue to address the problem of the industry and any crisis. I am here to intervene in the economy when needed," she said in response to a barrage of questions.

"Until now, sectors that have demanded some kind of intervention, we have responded to them. I'll be keen to see whether these steps are meeting the expectations of the sectors. If not, I may want to see if I need to do more. As of now, there is no other sector that has approached me as yet," she added. "I will not engage in speculations over retail inflation and interest rates," the FM said after being asked if there is a possibility of no more interest rate cuts by the Reserve Bank of India in view of high inflation."

Ironically, she started the media interaction saying, "We are here to put various legislative measures that we have taken and to come back to say where we are on the various announcements that were made before the Parliament session commenced for winter session and what progress has been made prior to the budget session."