A victory of opposition UPA alliance in the general elections could bring "considerable uncertainty" to India's policymaking environment and disappointment on oil and gas reforms, Fitch Solutions said Thursday.
"Given our core scenario for Prime Minister Narendra Modi's National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP), to secure the most number of seats in the upcoming Lower House elections, we expect to see policy continuity in India's oil and gas sector over the coming years," it said in a note.
Modi's targeted deregulation of domestic oil and gas has seen "partial success", it said, hoping to see see more progress in this area over the coming years as India seeks to attract the foreign investment it needs to push through developments across the industry.
"A win for the main opposition the United Progressive Alliance (UPA) could bring considerable uncertainty to India's policymaking environment and see the progress of oil and gas reforms continue to disappoint going forward, although this is not our core view," Fitch Solutions said.
It expects NDA to win most seats but not an absolute majority.
"Another prominent objective of Modi has been to increase access to and consumption of clean energy such as natural gas and renewables, and policies on this front are likely to gain greater traction over the coming years, as India strives to cut air pollution and curb coal use," it said.
India's oil and gas sector under Modi has taken several steps in the right direction, although results have been a mixed bag.
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His policies have been centred on three main objectives -- one, improving domestic energy security; two, targeted deregulation of the sector and three, increase access to and consumption of clean energy sources.
"Modi's attempts to curb India's growing reliance on energy imports, including by boosting domestic oil and gas production and increasing the use of biofuels, have proven insufficient, due to weak investor interest and supply constraints.
"In fact, the percentage of oil and gas demand met by imports has consistently expanded under Modi, with more negative consequences on government finances only spared by the dramatic fall in oil prices during the first few years of his time in office," it said.
Given forecast for oil prices to trend higher over the coming years, Fitch Solutions saw sufficient incentive for Modi to double down on prior efforts to manage imports.
The Prime Minister had pledged a crude oil import reduction of 10 per cent by 2022 but the dependence has risen to 82 per cent from 77 per cent four years back.
The task of cutting imports "remains a daunting proposition in our view, given the sheer size of India's economy and forecast broad-based energy demand growth across all sectors," it said.
While 100 per cent foreign direct investment (FDI) is permitted for most upstream projects, such as exploration, production and installation of associated infrastructure, India's upstream sector is heavily dominated by domestic firms, including state-owned ONGC, alongside independents Reliance Industries and Cairn India.
"The staggering decline in actual FDI inflows in recent years point to the clear need for further reforms," Fitch Solutions said. "The onus will be on India to create a more conducive environment for foreign investors, including improving oil and gas contract terms and reducing exposure to regulatory, operational risks, especially as markets across the south and southeast Asia make similarly aggressive moves to attract foreign capital."
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