A sharp fall in the value of rupee and soaring oil prices led to record high prices of diesel and petrol, forcing the government to cut taxes on them.
Domestic monthly diesel consumption fell for the first time in 10 months year-on-year in September, while petrol sales grew by the least in four months as record high pump prices dented demand, government data showed on Friday.
Lower local sales of petrol and diesel curbed growth in overall fuel demand to 1.1 percent in September, despite higher sales of liquefied petroleum gas and jet fuel.
Domestic fuel consumption, a proxy for oil demand, totalled 16.54 million tonnes in September, a decline of about 1.3 percent from August, data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed.
A sharp fall in the value of the rupee and soaring oil prices led to record high pump prices of diesel and petrol, forcing the government to cut taxes on them and asking retailers to cut marketing margins by 1 rupee a litre.
Diesel sales, which account for about 40 percent of refined fuels used in the country, declined by 0.8 percent to 6.03 million tonnes in September, the data showed.
Growth in sales of gasoline, widely used for transportation, eased to 4.2 percent to 2.23 million tonnes from the same month last year, as demand for passenger vehicles fell 5.6 percent in September from a year ago.
"It may have some price impact but we need to analyse that... last month growth in petrol and diesel sales were impacted as (in) September 2017 there was a robust growth," said M. K. Surana, Chairman of Hindustan Petroleum Corp.
Lower consumption of diesel also indicates slowing industrial activity, as it is used in industries and mining.
Industrial output in August grew 4.3 percent from a year earlier, compared to the downwardly revised 6.5 percent year-on-year increase in July.
Although overall monsoon rains were below average, floods in parts of the country restricted mobility and hit demand from farmers who use diesel-fuelled generators to power pumps for wells.
"Seasonally it is not a high demand period," Senthil Kumaran, senior oil analyst at FGE, said, adding that the worst is over for fuel buyers in term of prices as the government might cut taxes further.
"We see a marginal impact of pricing in September sales but going forward from now to until March we expect the government to continue to take measures to reduce the impact of higher prices through reduction of taxes ahead of elections next year."