INDIA ELECTIONS: Modi-led NDA set for third term; policy stability seen for India's energy, commodity sectors

Indian Prime Minister Narendra Modi on June 4 claimed victory in the federal election and said that the Bharatiya Janata Party-led National Democratic Alliance will form the government for the third consecutive time -- a result that is expected to ensure policy continuity for the energy and commodity sectors.

"The NDA is all set to form the government for the third time," Modi told party workers in a victory speech after the results showed the NDA alliance was ahead in more than 290 seats. Any party or alliance needs 272 seats in India's 543-member house to form a government.

"India's rapid economic growth will be underpinned by a multidimensional energy transition -- with strong demand growth for oil, gas and renewables," said Atul Arya, chief energy strategist at S&P Global Commodity Insights.

"With this win, we can expect policy continuity. It will present new investment opportunities for both domestic and international investors," he said.

The BJP-led alliance won a relatively lower number of seats compared with the previous elections in 2019, while the opposition alliance sharply improved its performance from the previous polls.

Balancing energy security with affordability

Modi said in his speech that the new government will "focus on the environment, green industrialization and green mobility."

The evolving energy landscape, coupled with the turbulent geopolitical situation and heightened attention on India as a hub for oil demand expansion could throw up challenges for the new government as it tries to ensure affordable energy and energy security, while working toward meeting its climate pledge, analysts and industry sources said.

But the government now is in a relatively better position to handle those challenges compared with a few years earlier.

"Over the years, the government's petroleum subsidy burden has declined sharply after prices of many products were decontrolled. The government also resorted to direct benefit transfer to disburse cooking gas subsidy to citizens," said Dharmakirti Joshi, chief economist for India at CRISIL, part of Commodity Insights.

"Consequently, the fiscal impact of high crude oil prices is much less now. Consumers are also in a position to bear a higher burden. Oil marketing companies, which control sales of gasoline and diesel, balance prices by absorbing adverse shocks and retaining gains," he added.

The growing belief that India could become the epicenter of oil demand growth is expected to prompt the new government to prioritize refining and upstream investments, as well as expand oil storage facilities and crude import sources to dilute the impact of growing geopolitical turbulence, according to analysts and industry sources.

Commodity Insights expects India's oil demand to grow as high as 5.54 million b/d in 2030 from about 4.5 million b/d in 2023.

"Economic growth is on an upswing," said Vibhuti Garg, director for South Asia at the Institute for Energy Economics and Financial Analysis. "With the NDA government back in power, this means demand for oil will go up, but India is in stronger position to crack better deals with the Middle East and Russia."

"However, this government push for clean energy will drive demand for renewable energy and storage solutions. In the transport sector, demand for electric and hybrid vehicles is rising, thus in the next few years, demand for oil will go down and will be substituted by clean energy alternatives."

Unfinished agenda

The new government will start office for the third time with some familiar challenges of keeping energy supply affordable, reliable and clean -- all of which underpin the goal for natural gas to have a 15% share of the country's primary energy mix by 2030.

The government first set this 15% target in 2017 when the share of gas was just over 6%, but in the years since the needle has not moved much. While the 15% target has remained unchanged, the energy landscape has evolved rapidly during that period, raising questions over whether it is still relevant.

India, as the world's third-largest fuel ethanol producer, aims to achieve a 20% ethanol blending rate in gasoline by 2025. Market participants have been concerned about a scarcity of first-generation feedstocks, primarily sourced from sugarcane and corn, that could delay that timeline.

They expect the new government to address challenges in utilizing second-generation feedstocks such as agricultural and biomass waste to ensure a stronger ethanol production supply chain.