The growth rate of India’s diesel consumption in FY24 is expected to be half of the 12 per cent year-on-year (y-o-y) growth recorded in FY23. In the previous financial year, India consumed 85.9 million tonnes (mt) of diesel.

An analysis of data from the Petroleum Planning and Analysis Cell (PPAC) reveals that FY23 is the only year in more than two decades when diesel consumption grew in double digits—the highest both in terms of quantity and growth rate.

In comparison, the second highest growth rate was recorded in FY16, when demand grew at 7.64 per cent y-o-y to 74.7 mt.

On the other hand, diesel consumption during the Covid-impacted FY21 fell 12 per cent y-o-y to 72.2 mt.

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On a monthly basis, diesel consumption, which accounts for around 40 per cent of India’s petroleum products demand, rose by 1.3 per cent to 7.8 mt, which is also the highest in over two decades.

According to Prashant Vasisht, ICRA VP & Co-Group Head (Corporate Ratings), has attributed higher consumption to heightened industrial activity during the last month of the financial year. Historically, March has always seen a spike in consumption.

Growth rate moderates

The PPAC expects diesel consumption to hit 90.56 mt in FY24, which is higher by 5.4 per cent on an annual basis.

Echoing this view, Vasisht said that diesel consumption is likely to grow 4-5 per cent in FY24 due to a high base in FY23.

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A senior official with an oil marketing company (OMC) said that consumption of the fuel was high in FY23 due to a low base of 76.7 mt in the Covid-impacted FY22.

“Diesel consumption has surpassed pre-pandemic levels of 82.6 mt in FY20 and 83.5 mt in FY19. Now, growth will largely be incremental with a boost coming in FY24 from heightened construction activities. The downside, which needs to be monitored, will be the subdued global industrial demand, which can put pressure on exports,” he explained.

Decline in decadal rate of growth

Growth in the consumption of diesel has come down over the last decade.

From 3.1 mt in March 2003, the domestic consumption doubled to 6.2 mt in March 2013. However, the consumption came down to 7.8 mt in March 2023.

ICRA’s Vasisht attributes it to lower price differential between petrol and diesel in the past few years.

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Deregulation of petrol and diesel prices has led to a decrease in the preference for diesel vehicles, he added.

“Better electricity supply in the country leading to lower diesel consumption by gensets for power generation, increase in fuel efficiency of vehicles and phasing out of older vehicles, greater electrification of railways and increasing penetration of alternate fuels such as CNG in commercial vehicles and electrification of buses are other factors that led to decrease in the consumption of fuel,” he added.

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