Indian oil demand tumbles to 13-year low on cash crackdown

The recent decision by the government tom outlaw larger banknotes has spurred a fall in fuel consumption as a lack of ready cash leaves many without the ability to pay.

An Indian cyclist crosses Rajpath in New Delhi. Petrol and diesel consumption has plummeted following demonitisation in November. Sharma / AFP

India’s monthly oil demand fell the most since May 2003 as the government’s crackdown on high-value currency notes continued to reverberate through the country’s US$2 trillion economy.

Fuel consumption fell 4.5 per cent to 15.5 million tonnes in January from 16.2 million tonnes a year ago, the oil ministry’s petroleum planning and analysis cell said. Diesel use, which accounts for about 40 per cent of total fuel demand in India, dropped 7.8 per cent to 5.8 million tonnes, the biggest decline since September. Gasoline consumption fell the most since June.

Expansion in the world’s fastest-growing major economy is under pressure after the prime minister Narendra Modi in November withdrew high-value currency notes in a country where almost all consumer payments are in cash. Growth in GDP may slow to 6.5 per cent in the year through March from 7.9 per cent the previous year, according to an economic survey presented by the finance minister’s advisers.

“This decline in demand is due to demonetisation,” according to Tushar Tarun Bansal, a director at Ivy Global Energy. “I would expect this decline to be a one off and dissipate from February. This should result in a slower demand growth for diesel in the first quarter in 2017.”

India imports more than 80 per cent of its crude requirement and the International Energy Agency expects it to be the fastest-growing consumer through 2040. In most areas people are spending the same amount on fuel that they did before the money crackdown, although some rural areas and small businesses are still affected, according to Bansal.

Petcoke consumption fell for the first time in more than a year, declining about 9.9 per cent to 1.95 million tonnes. Petrol consumption fell 0.6 per cent to 1.8 million tonnes. Liquefied petroleum gas use expanded 16.4 per cent to 2 million tonnes, while jet fuel demand increased 17.8 per cent to 627,000 tonnes.

* Bloomberg

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