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COVID-19 Impact- Country’s Economic Outlook is Deteriorating! Fuel Demand In India To Decline By 11.5% In 2020

Fitch’s solution for India’s 2020 refined fuel demand forecast is further reduced from minus 9.4% to minus 11.5%, in line with the further deterioration in the country’s economic outlook.

Its economists now forecast a real GDP contraction of 8.6% in FY21, down from the previous negative 4.5%. In the first quarter of fiscal year 21, GDP declined by 23.9%, the abruptest contraction on record.

The domestic coronavirus pandemic outbreak shows no indications of abating with the continued increase in daily cases. Although the nationwide lockdown was lifted on May 31 from March 25, state-level restrictions still exist and maybe drag on the economy recovering, Fitch said.

The job losses, loss of income, and high unemployment rate caused by the coronavirus have severely depressed consumer spending, which in turn will put pressure on business investment.

According to a national risk analyst, Fitch, the government has introduced a series of stimulus measures in response to the pandemic. In the face of continuing revenue deficits, the government may continue to increase spending.

However, given the current scale of the economic collapse being wrought, fiscal measures are far from sufficient. Weak demand spreads across the board, and consumption and industrial fuels will drop sharply. With the nationwide lockdown from 25 March to May 31, domestic demand plunged, reaching its lowest point in April, and the growth for total fuel consumption fell by 48.7% year-on-year.

Furthermore, when the lockdown rolled back, demand began to show some signs of life, shrinking by only 8.6% in June. However, state-level restrictions, the sustained destruction of economic activities, and the persistent and radical spread of the virus have caused demand to fall again, and August’s growth contracted by minus 20.6%.

As social distancing measures cut off traffic and travel and restricted the demand for air, roads, and shipping freight, the transportation sector has suffered the most losses. Jet fuel has the sharpest contraction(in percentage terms), with average consumption dropping by 46.6% in the eight months to August.

At its lowest point in April, due to the total ban on flights, demand plummeted by 91.4%, excluding the demand for essential cargo transportation such as medicines. The gasoline demand dropped by 16.1% on average (a decrease of 60.4%), and the demand for diesel, which is widely used in transportation, industrial, and power plants, dropped by 25.0%, with a minimum of 55.5%.

Due to restrictions on business activities, labor and supply shortages, and credit restrictions, overall industrial demand has dropped sharply. One of the highlights was the 4.3% increase in LPG demand.

The rating agency predicts that as the epidemic will be brought under control and economic activity returns to normal, growth will increase by 5% year-on-year by 2021 and 2022.

Fitch stated that its forecasts for fuel demand in 2021 and 2022 are skewed to the downward. Before COVID-19, the economy was already under strain The coronavirus has only intensified this pressure, and the road to recovery is still far away. In the upcoming months, the service and manufacturing sectors will continue to be under pressure because of the weak demand and state-level constraints limit activities.

The rating agency appended that the recovery of these sectors will be slower, with real Gross Domestic Product growth (+6.2%) in 2021 is foreseen to be significantly lower than this year’s contraction. 

Social distancing measures have boosted domestic demand as a whole, while the government’s policies to providing free cylinder refills to low-income households offered a further impetus.



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