The demand for diesel, the lifeblood of India’s economy, plunged 3.9 per cent in the first fortnight of June compared with a year ago that appears to be a monthly trend — raising fears of a slowdown.

Demand not only fell in June but also in the first fortnight of May (down 1.1 per cent), April (2.3 per cent) and March (2.7 per cent), according to data of state-owned retailers.

Diesel is India’s most consumed fuel, accounting for almost 40 per cent of all petroleum product consumption. The transport sector accounts for 70 per cent of all diesel sales in the country. It is also the predominant fuel used in agriculture sectors, including in harvesters and tractors.

The decline in demand is a sign of a possible decline in economic activity in these sectors.

Diesel sales are a major source of tax revenue for the government. The sustained slump could lead to lower tax collections, potentially impacting public spending plans.

Besides electioneering, the summer harvest season as also the scorching summer that increases the demand for air conditioning in cars, should have led to a rise in fuel consumption. However, this year has defied the trend..

A comprehensive analysis and revised fuel pricing strategies are crucial to address this issue and ensure the smooth functioning of India’s economy, particularly its vital transportation and agriculture sectors, analysts said.

Petrol and diesel prices were reduced by ₹2 per litre in mid-March, ending a nearly two-year-long hiatus in rate revision, which should have also propelled sales.

The effectiveness of recent government price cuts in stimulating diesel sales needs to be reassessed.

Investigating potential shifts towards alternative fuels such as CNG or electric vehicles in the transportation sector is crucial.

Monitoring economic indicators and studying diesel consumption patterns over a longer period will help determine if this is a temporary blip or a long-term trend requiring corrective action, the analysts said.

Petrol use

Petrol sales of three state-owned firms, which control 90 per cent of the fuel market, at 1.42 million tonnes (mt) in the first half of June was almost the same as 1.41mt of fuel consumed in the same period last year.

Consumption of petrol during June 1-15 was 4.6 per cent lower than in the first fortnight of June 2022, and 28.1 per cent more than in the Covid-marred same period of 2020.