While demonetisation dampened petrol demand growth
to 3 per cent in the January-March quarter, slowest in the past decade,
the growth will recover in the first quarter of 2018 to around 9 per
cent, said the research and consultancy firm.
The introduction of Goods and Services Tax (GST) has lifted
oil demand in India this year on higher sales of conventional passenger
cars and utility vehicles, Wood Mackenzie said today.
While
demonetisation dampened petrol demand growth to 3 per cent in the
January-March quarter, slowest in the past decade, the growth will
recover in the first quarter of 2018 to around 9 per cent, said the
research and consultancy firm.
Crude oil, natural gas, diesel and
petrol are currently exempt from the GST. But petrol and diesel demand
are indirectly affected by the impact of GST on vehicle prices and
sales, especially in the logistics sector, it said.
Wood
Mackenzie’s Asia refining research analyst Aman Verma said in a report
that petrol demand is projected to increase to 670,000 barrels per day
(bpd) in 2018, a 7 per cent increase compared to 2017 levels.
Diesel, the most consumed fuel in India, is estimated to grow by 60,000 bpd, 50 per cent higher than 2017 levels, he said.
"The
GST will boost gasoline demand in the short to medium term, as more
conventional passenger cars and utility vehicles are sold -- much to the
detriment of hybrids," he said.
Car prices may fall after five
years once the cess levied to compensate states for loss of revenue from
introduction of GST, goes.
While this will lend support to petrol
demand in the long term, the tax gap between conventional cars and
electric vehicles (EVs) will narrow.
"As India pushes towards a
wider EV adoption policy, we anticipate EV manufacturers will face
greater cost rivalry from the current players," he said.
Wood
Mackenzie also forecast a boost to freight diesel in the short to long
term, thanks to the removal of obstacles when trucking between states.
"As
the aftermath of demonetisation diminishes, businesses adapt to the GST
and diesel car sales sink further, it will be the freight sector that
will drive growth in diesel demand," it said.
Passenger car and
utility vehicles sales in the July- September quarter rose 9 per cent
and 27 per cent year-on-year respectively, compared with average
quarterly growth of 2 per cent and 18 per cent over the past five years.
Consequently, petrol demand grew 9 per cent in the third quarter this year.
"The
strong growth was also supported by increased agricultural output
leading to higher rural disposable income and discounts offered during
the festive season," Verma said.
While the inclusion of crude and
petroleum products in the GST ambit in the future cannot be ruled out,
it will be a huge challenge given that state governments currently
receive substantial revenues from petroleum product sales.
GST
hasn’t been so kind to hybrid cars as it imposed higher tax rates which
has led to 13 per cent rise in prices, affecting sales. But the same on
pure electric vehicles has been cut by around 9 per cent, the greatest
tax cut among all car and fuel types.
This is on top of cash
incentives that buyers receive on EV purchases under India’s Faster
Adoption and Manufacturing of Hybrid and Electric Vehicles scheme.
"This
clearly indicates the government’s intent to promote EVs as a cleaner
solution than hybrids. However, given the limited variety of models
available and other challenges related to range and charging
infrastructure, EV sales are unlikely to increase in the short term,"
Verma said.
Diesel car sales have dropped from 47 per cent of total car sales in 2012-13 to 23 per cent in 2016-17.
Increased
focus on on-road diesel emissions, the reduced price gap between petrol
and diesel fuel, and constraints on the use of older diesel cars in
major cities are some of the factors that can be attributed to this
trend.
A 2 per cent higher cess on small diesel cars compared with
small gasoline cars partly indicates the government’s intention to keep
the former off the roads.
In 2016, diesel demand in the road
transport sector was around 1.09 million bpd, with the road freight
sector contributing more than 86 per cent.
Wood Mackenzie said the
government plans to invest around USD 31 billion to build multi-modal
logistics parks across the country.
"As logistics operators
consolidate their warehouse infrastructure and operations, goods will be
moved longer distances across states leading to greater demand for
high- tonnage, long-haul trucks. This is likely to increase diesel
demand in the freight sector in the long term," it added.
17 Nov 2017, 01:06 PM