Rising Demand For Petrol In India

Rise in Fuel Demand

According to a Petroleum Planning and Analysis Cell (PPAC) report, India’s fuel consumption in September 2015 showed the fastest growth in about a decade. That month diesel consumption was pegged at 5.89 million tonnes (growth of 20.1 percent) and petrol consumption was estimated to be 1.9 million tonnes (growth of 25.4 percent). In January 2016, PPAC reported that India’s total fuel demand rose by about 12.7 percent to 15.71 million tonnes. India has now already overtaken Japan to become the third largest oil consumer in the world. Petrol seems to be at the centre of this burgeoning rise in demand for fuel. In February 2016 alone the country has recorded a consumption of 1.82 million tonnes of petrol (annual hike of 11.4 percent).

Owning a Private Car

One of the main drivers of hike in the demand for petrol is the massive increase in sale of small cars – a trend that has kept the automobile industry on its toes in recent years. Until the 1980s, car sales in the country were estimated to be about 40,000 cars a year. In 2013, the annual car sales in the country were pegged at about 18.07 lakh units. As of FY 2016-17, predictions are that the sale of small cars and utility vehicles is likely to go up by about 12 percent which means on an average about 2,30,000 new cars are likely to hit the roads each month. What’s more is that the growth in car sales in rural sectors and small cities of the country has been phenomenal.

Increase in earning capacity and flooded with credit options, owning a car is no longer considered a status symbol but is looked upon as a matter of necessity. Add to this, ever worsening public transportation systems and a huge growth in disposable incomes and families are increasingly opting to own multiple cars and vehicles rather than depend on public conveyances. The natural corollary to this massive spike in car buying trend in the country is a simultaneous growth in demand for petrol.

Supreme Court Directive

In December 2015, the Supreme Court of India imposed a ban on the sale of large diesel cars (engine capacity of 2,000 cc and above) in the national capital till 31 March 2016. Delhi is widely acknowledged to be one of the most polluted cities of the world. The worsening air pollution and toxicity situation in the city prompted the apex court to issue such a drastic ban. This in turn, however, has propelled the demand for petrol in Delhi. The ban also prohibits all trucks older than 10 years to pass through the capital city. In January 2016, the Supreme Court refused to lift the ban despite petitions from international automobile manufacturers. It is also likely that the court may consider levying a countrywide “green tax” on the sale of diesel vehicles.

Government on Petrol Vs. Diesel

The NDA government also seems to be keen on taking charge of environment friendly measures and making diesel less attractive to the masses. In India, public transportation has traditionally been fueled by diesel and hence the levy on diesel has been less than that on petrol. In the past few months, however, the NaMo sarkaar has turned the tide. On 16 December 2015, the excise duty on petrol went up by 30 paise while the corresponding increase in diesel was by INR 1.17. Within a fortnight, on 1 January 2016, the increase in excise duty on petrol was pegged at 37 paise but the increase in excise duty on diesel was INR 2. More recently, on 29 February, the government raised excise on petrol by INR 1 a litre but the duty on diesel went up by INR 1.50. The trend is a clear one.

The Union Budget presented by FM Arun Jaitley in February 2016 also clearly reflects the government’s stand to promote petrol, an environment friendlier alternative, over diesel. In his speech, the FM proposed to levy an infrastructure cess on the sale of various vehicles making car prices go up. The proposed cess on petrol cars (hatchbacks) is, however, only 1 percent while it goes up by 2.5 on diesel cars and by 4 percent on all SUVs. The intent is clear – narrow the gap between petrol and diesel costs and make small petrol cars more attractive to the masses.

Imports Burden

India is largely dependent on imports to meet its crude oil demand. Our nation imports about 80 percent of the oil it needs. In 2014-15, India spent roughly USD 112.748 billion (approximately 687,369 crore) on oil imports. The total quantity imported during this fiscal year is pegged at about 189.43 million tonnes. For FY 2016, the PPAC estimates that oil imports will remain at about the same levels (about 188.23 million tonnes) but the burden on the exchequer is likely to be considerably reduced at INR 548.655 crore. This slack comes from the global fall in crude prices, a trend that has been going on for some time now. India, however, will have major concerns if oil prices start to pick up. India’s oil consumption is also likely to have doubled by the year 2040, given current trends. The growth in what can be considered an already high demand is not likely to ease India’s import woes.

Make Oil in India

The only possible solution to ease India’s oil import bill over the long-term is by strengthening indigenous capabilities. Paradip with a capability of 300,000 barrels per day (bpd) was designed to develop India’s export capabilities but the nation’s demands have grown far beyond its capability. The refineries across the nation currently produce about 4.5 million bpd oil and plans are afoot to add a 1.2 million bpd plant on the west coast in the Arabian Sea.