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Explained: Why India’s fuel consumption contracted last fiscal year

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Why India’s fuel consumption contracted last fiscal year
Business Standard

While petrol consumption has recovered to pre-pandemic levels, the consumption of diesel, which is a key indicator of economic activity has still not recovered. LPG was the only key fuel that saw a growth in consumption during the fiscal.

India’s fuel consumption fell by 9.1 per cent in FY21 in the first instance of a contraction in government records which provide data since 1996-97 fiscal. The nationwide lockdown imposed in March 2020 to curb the spread of the Covid-19 pandemic and its subsequent economic fallout are the key reasons behind the fall in fuel consumption according to experts. While petrol consumption has recovered to pre-pandemic levels, the consumption of diesel, which is a key indicator of economic activity has still not recovered. LPG was the only key fuel that saw a growth in consumption during the fiscal.

We examine how the demand of key fuels has fared during the fiscal.

Which fuels have fallen in consumption and why?

Diesel consumption in FY21 stood at 72,720 Thousand Metric Tonnes (TMT), down 12 per cent from consumption of 82,602 TMT in FY20. Lower overall economic activity as well as a sharp fall in diesel use by the public transportation sector is a key reason behind the fall in demand for diesel. Diesel is also used as an agricultural fuel besides being used in transportation and industry.

Diesel demand has still not recovered to pre-pandemic levels with consumption in March 2021 still lagging behind consumption in March 2019, even though it surpassed consumption in March 2020 due to the base effect of low consumption due to the lockdown. Diesel consumption also posted a one-off growth in October due to increased demand before the festive period before reverting to below pre-pandemic levels.

Experts have noted that a complete recovery of diesel consumption would only come when economic activity completely recovered to pre-pandemic levels. India witnessed sharp GDP contractions in the first two quarters of the fiscal which witness the most stringent restrictions on movement. India’s GDP is expected to contract by 8.0% in the fiscal according to the National Statistical Office.

Lower consumption by the Indian Railways due to lower passenger traffic during the fiscal may also have contributed to the fall in diesel consumption.

Petrol consumption however recovered to pre-pandemic levels in September and has continued to consistently post growth in consumption as individuals are increasingly preferring personal transportation to protect themselves from the spread of Covid-19. However, total consumption for petrol during the fiscal was still down 6.8 per cent for the fiscal at 27,951 TMT compared to 29,975 TMT in the previous fiscal due to the impact of lower consumption in the first half of the financial year.

The consumption of Aviation Turbine Fuel (ATF) fell by 53.6 per cent to 3705 TMT from 7999 TMT in the previous fiscal as airlines continue to operate far below full capacity due to far lower demand even as the government has allowed airlines to steadily increase operating capacity.

Why has LPG consumption grown?

LPG consumption in FY21 grew 4.8 per cent to 27,591 TMT from 26,330 TMT in FY20. Experts noted that the consumption of the cooking fuel was largely unaffected by Covid-19 restriction as deliveries of LPG cylinders continued largely uninterrupted during Covid-19 lockdowns. The government also announced a scheme to provide three free LPG cylinders to poor families as part of its Covid-19 relief package which helped keep LPG consumption up. LPG consumption did however post a slight decline in March with experts noting that some consumer may have cut consumption or switched to alternative fuels due to a consistent rise in the price of LPG. The price of a 14.2 KG LPG cylinder in the national capital has risen to Rs 809 per cylinder in April from Rs 594 per cylinder in November.

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