In its research note, Fitch Solution said, "We have made a further downward revision to our India refined fuels demand forecast for 2020, from -9.4% to -11.5%, in line with further deterioration in the country’s economic outlook. Our economists now forecast real GDP to contract by 8.6% in FY2020/21, down from -4.5% previously."
Currently, India's GDP has witnessed the steepest correction by declining by 23.9% during April - June 2020 quarter.
"The domestic Covid-19 outbreak shows no signs of abating, with daily cases continuing to accelerate. While the nationwide lockdown (in place since March 25) was lifted on May 31, state-level restrictions remain in place and will likely drag on the economic recovery," Fitch Solution's note said.
As nationwide lockdown stayed in place from late March till May, the domestic demand plummeted reaching it's lower in April at -48.7% yoy growth for total fuel consumption. With unlock phases kick starting from June, recovery was seen in demand as a contraction of just 8.6% was recorded in that same month.
However, Fitch Solutions note said, state-level restrictions, persistent disruption to economic activity and continued and aggressive spread of the virus have dragged demand lower once again, with growth contracting by -20.6% in August.
According to Fitch Solutions, the transport sectors have suffered the heaviest losses, as social distancing measures cut off traffic and travel and curb demand for road, air and shipping freight.
In terms of percentage, jet fuel has registered the sharpest contraction, with consumption dropping on an average by 46.6% in the eight months to August. At its April low, demand plummeted by 91.4% y-o-y, due to a total ban on flights, excluding those for essential cargo movement, such as medicines, Fitch's note highlighted.
Meanwhile, gasoline demand also fell by an average of 16.1% in the YTD (with a low of 60.4%) and diesel demand (which is widely used in the transport, industrial and power sectors) slumped by 25.0%, with a low of 55.5%.
"Demand weakness is spread across the board, with both consumer and industrial fuels set for steep declines," said Fitch's note.
Amid this, it was only LPG demand which was on a bright spot by rising 4.3% so far this year.
Fitch Solution in its note said, "We hold to our forecast of 5.0% y-o-y growth in 2021 and 2022, as the outbreak is brought under control and economic activity normalises. However, the risks to the forecast are skewed to the downside."
The note added, "That being said, there are some bright spots. Favourable monsoon rainfall this season points to a strong harvest, while a recent sharp rebound in steel and cement output points to a nascent recovery in construction. Both are positive for employment and incomes, particularly in rural areas. However, they are not of themselves sufficient to offset broader weakness in the manufacturing and services sectors."