Economy reviving: India's petrol, diesel consumption set to go up

India’s petrol and diesel consumption will grow by 14 percent and 10 percent respectively in financial year ending March 31, 2023, says a report by credit rating agency ICRA.

Globally, an increase in energy consumption (electricity and fossil fuels) is considered an indication of revival of demand, which augurs well for the economy.

India is currently witnessing an upward surge in fuel prices, with the prices having already crossed over ₹100 per litre in many cities. If there is an increase in the global fuel prices, India, being the world’s third largest importer of oil, will affect the fuel prices, inflation may rise and so would the trade deficit.

“Benefiting from the revival in consumption of fuels, the aggregate revenue generated from the cesses imposed by the Government of India (GoI) on MS (petrol) and HSD (diesel) is estimated to expand by 13% or ₹0.4 trillion to ₹3.6 trillion in FY2022. If this additional revenue of ₹0.4 trillion is foregone, it can support a reduction in cesses by ₹4.5/litre each on MS and HSD,” said Aditi Nayar, chief economist, ICRA Ltd.

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Data from the Petroleum Planning and Analysis Cell (PPAC) shows that the price of Indian basket of crude had dropped down to $19.90 last year in April, and then recovered to $66.95 in May this year.

“Such a revenue neutral cut in cesses on fuels would shave off a modest 10 bps from ICRA’s forecast of 5.25% for the CPI inflation for July 2021, in terms of the first-round impact, with a similar second round impact likely with a moderate lag,” the statement added.

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Care Ratings, in a report published on Thursday said that the global crude oil prices may hover around $75 to $80 till September. On Wednesday, Moody’s Investors Services had cut down India’s growth rate from 13.9 percent to 9.6 percent in the wake of the restrictions imposed due to the second wave of Covid-19 in the country.

“The favourable prospects of a global economic rebound brought by the vaccine roll out optimism, have resulted in a nearly uninterrupted increase in the international crude oil prices since January 2021,” the statement added.