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World Economy

OPEC Monthly Oil Market Report – October 2017

23

India

India’s 2017 GDP growth

expectation fell to 6.9%, for the year 2017 on the back of lower 2Q17 data. The

breakdown suggests that this was largely the result of domestic factors such as demonetisation and the

rollout of the Indian Goods and Services Tax (GST).

A key concern over the

GST

implementation is that it may fuel inflation and slow consumption temporarily,

with tax increases being passed on to consumers faster than reductions. The Indian government argues that

the GST’s greater number of tax brackets and its anti-profiteering provision should ensure that the country’s

new tax regime is inflation-neutral. The slow effects of recent economic shocks continue to cast a shadow on

India’s GDP growth which could extend into the next quarter, but gradually will recover. The new GST regime

is undoubtedly a milestone reform for India. At the macro level, the overall benefits of GST would provide

some upside to the economy in the long-run.

For the

energy sector

, inconsistencies in GST tax coverage could lead to some sectors, such as

renewables, losing competitiveness. This will need to be monitored as details of the actual GST regime get

ironed out by the government. As it stands, the proposed GST regime will include several petroleum

products, including LPG, naphtha and kerosene, but not coal, electricity and the five major oil and gas

products – crude, natural gas, aviation turbine fuel, diesel and petrol. Thus, it seems the impact on the oil

and gas sector will be relatively soft. The three products which are excluded (petrol, diesel and aviation

turbine fuel) account for more than 60% of refinery output. Hence, the overall impact of GST on existing

refineries will be minimal compared to the potential of having new players.

Graph 3 - 17: Indian GDP growth

Graph 3 - 18: Indian inflation

India’s CPI

inflation increased 3.36% y-o-y in August, following a 2.36% rise a month earlier and above

market expectations of 3.2%. It is the highest inflation rate since March, due to a rebound in food prices. The

Reserve Bank of India (RBI) expects an inflation rate in the range of 2% to 3.5% in the 1H17 fiscal year (that

is, April to September 2017) and in the range of 3.5% to 4.5% in the 2H17 fiscal year (that is, October 2017

to March 2018). Prices went up at a faster pace for food and beverages. The food index alone jumped

1.52%, recovering from a 0.29% drop in July. In addition, prices went up faster for housing (5.58% from

4.98%), fuel and light (4.94% compared to 4.86% in July) and clothing and footwear (4.58% compared to

4.22%).

India’s WPI

rose 3.24% y-o-y in August of 2017, following a 1.88% increase in the prior month and above

market estimates for a 3.0% gain. It was the highest wholesale inflation since April due to a surge in prices of

food and fuel. High inflation contributed to an historic widening of the current account deficit and slowing

growth. The RBI kept its

benchmark interest rate

steady at 6% on 4 October 2017 following a 25 basis

points (bp) cut in August and in line with market expectations but it seems some investors expected a 25 bp

rate cut.

6.1 5.7

7.1

7.5

7.9

4

5

6

7

8

9

10

1Q 14

2Q 14

3Q 14

4Q 14

1Q 15

2Q 15

3Q 15

4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

Sources: National Informatics Centre (NIC) and

Haver Analytics.

% change y-o-y

3.36

3.24

0

1

2

3

4

5

6

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Aug 17

%

Consumer price index (CPI)

Wholesale price index (WPI)

Sources: Ministry of Commerce and Industry, Reserve Bank of

India and Haver Analytics.