India’s oil demand growth nearly halved in FY24

New Delhi| In a significant turn of events, India’s oil demand growth has nearly halved this financial year, primarily due to a significant slump in diesel sales. August 2024 witnessed a 2.5% year-on-year decline in diesel consumption, reflecting broader economic shifts. As one of the world’s largest consumers of diesel, this decline is significant. In fact, diesel accounts for 38% of all refined fuel consumption in India.

Interestingly, India imported 232.5 million tones of crude oil in FY24, nearly the same as the previous financial year. However, the import bill was substantially lower—$132 billion in FY24, down from $157 billion in FY23—thanks to lower global crude prices and access to cheaper Russian oil. This has provided much-needed fiscal relief, but the demand dynamics within the country paint a more complex picture.

One of the main reasons behind the drop in diesel consumption is the significant slowdown in large automobile sales. Within the popular SUV segment, premium SUVs—most of which run on diesel—have seen an 18% year-on-year drop in sales during the April-August period. Meanwhile, larger sedans have almost halved their sales. In contrast, smaller petrol-run SUVs have surged by 65%, highlighting a notable shift in consumer preferences. This trend extends to the value-conscious MPV segment, which has grown by 21%, with a clear preference for smaller petrol and hybrid vehicles.

The Federation of Automobile Dealers Associations (FADA) reports alarming inventory levels, with stock days stretching to 70-75 days, totaling 7.8 lakh vehicles valued at Rs 77,800 crore. This oversupply is leading to significant discounts across the industry.

One of the underlying causes behind this shift is India’s worsening urban traffic congestion. Bengaluru, ranked 6th globally in traffic congestion by TomTom’s Traffic Index, sees commuters lose an average of 132 hours per year to traffic. Mumbai and Delhi are not far behind, with 92 and 81 hours lost, respectively. It’s important to note that these are average values, and the time lost by frequent rush-hour commuters can be significantly larger.

While this has fueled the rise of industries like quick commerce, it has also resulted in a slowdown for sectors dependent on public movement, such as autos, restaurants, and even cinema. Movie ticket sales, for instance, are down by 15% year-on-year.

These trends indicate a general saturation in urban consumption, which poses a long-term challenge for India’s economic growth. To sustain urban demand, it’s crucial to invest in developing more cities* and improving infrastructure, so as to ensure that consumption doesn’t get capped by the current urban limits.