India’s fuel consumption dropped by 9.1% in FY21, the first time since the 1996-97 fiscal year that government records show a decrease. According to analysts, the national lockdown imposed in March 2020 to stop the spread of the Covid-19 pandemic and its economic consequences is the main reason for the drop in fuel consumption. Although gasoline demand has returned to pre-pandemic levels, diesel consumption, which is a leading indicator of economic development, has not. During the fiscal year, LPG was the only major fuel that saw an increase in demand.
Which fuels have seen a drop in demand, and why?
Diesel use in FY21 was down 12 per cent from 82,602 TMT in FY20 to 72,720 thousand metric tons. A significant factor behind a decrease in fuel requirements is the lower overall economic growth and the rapid decline in diesel usage in the public transport market. In addition to being used in transport and manufacturing, this diesel is also used as an agricultural source. In March 2021 the amount of pre-pandemic diesel demand also did not rebound and usage was declining in March 2019. The base impact of low consumption due to the lockdown in March 2020 outstripped consumption. In October, diesel usage also reported a one-off increase because of an increase in demand before the holiday season before the pre-pandemic rise.
Experts also recognized that a full recovery in diesel use would come only if economic growth returned to pre-pandemic peaks. In the first two-quarters of the fiscal period, India experienced sharp GDP contractions that witnessed the strongest movement restrictions. The National Statistical Office (NSO) estimates that India’s GDP will contract by 8.0 per cent in fiscal terms.
Lower use by Indian Railways during the fiscal year due to lower passenger traffic may have also led to the drop in diesel usage. Petrol intake, on the other hand, recovered to pre-pandemic levels in September and has continued to rise as people steadily choose personal transportation to shield themselves from the spread of Covid-19. However, owing to the effects of lower demand in the first half of the financial year, gross fuel usage for the fiscal was still down 6.8% at 27,951 TMT compared to 29,975 TMT the previous fiscal. Aviation Turbine Fuel (ATF) consumption dropped by 53.6 per cent to 3705 TMT from 7999 TMT the previous fiscal year, as airlines continue to operate at a fraction of full capacity due to lower demand, despite the government allowing airlines to gradually expand the capacity.
What is the reason for the rise in LPG consumption?
From 26,330 TMT in FY20 to 27,591 TMT in FY21, LPG intake increased by 4.8 percent to 27,591 TMT. Experts observed that despite Covid-19 lockdowns, supplies of LPG cylinders continued largely unchanged, indicating that cooking fuel consumption remained largely unaffected. As part of its Covid-19 relief programme, the government also launched a scheme to give three free LPG cylinders to poor households, which helped hold LPG consumption up. However, LPG usage fell slightly in March, with analysts speculating that rising LPG prices could have caused some consumers to reduce their consumption or turn to alternative fuels. In the national capital, the price of a 14.2 KG LPG cylinder increased to Rs 809 per cylinder in April from Rs 594 in November.
How invested is the government in fuel-related activities?
During the coronavirus pandemic, the state government raised VAT and provided additional income. The state sales volume decreased by 34% as fuel costs in the neighbouring States were relatively modest. Petrol remains at Rs 96.83 per litre in Mumbai, while diesel remains at Rs 87.81. Petrol and diesel, on the other hand, remain at Rs 90.40 per litre and Rs 87.81 per litre in the capital, as it is in many other Indian markets.
Recently, petrol stations in Rajasthan were closed due to a demand from dealers for the VAT on fuel to be rolled back. People faced difficulties across the state as a result of a one-day strike called by the Rajasthan Petroleum Dealers Association of fuel stations, which demanded a rollback in the state’s VAT on fuel. Thanks to the protest, about 7,000 gas stations in the state stayed closed. However, public access to company-owned and run gasoline pumps was available.