12.7 per cent dip in diesel demand in July
Diesel consumption, a bellwether of economic performance,declined 12.7% in July compared to the previous month mainly because of demand constraints, heavy rains in parts of the country and weekend lockdowns imposed in several areas to curb the spread of the coronavirus disease (Covid-19) .
Consumption of diesel in July dropped to 5.5 million tonnes (MMT) compared to 6.3 million tonnes in June. Overall consumption of petroleum products also dropped 3.7% drop to 15.7 million tonnes compared to 16.3 million tonnes in the previous month, according to the oil ministry’s data-keeper Petroleum Planning and Analysis Cell (PPAC).
The July consumption of diesel compared with 6.8 million tonnes in the same month last year. A contraction in the use of diesel eased from -55.5% in April year-on-year to -29.3% in May and -15.4% in June after the coronavirus disease lockdown was gradually relaxed starting on June 1. The trend, however, saw a reversal in July with a 19.3% contraction.year-on-year..
Experts said diesel demand typically decrease in the monsoon months of July and August, and reckoned that an uptick in the economic activity after Unlock 1.0 should be sustainable in the coming months. The country had been under a 68-day lockdown since March 25. It started opening up gradually from June 1, with Unlock 1.0. The Union government on June 29 issued guidelines for Unlock 2.0 to lift more restrictions imposed to stop the spread of Covid-19 pandemic effective for a month from July 1.
Ram Singh, a professor at the Delhi School of Economics, said a drop in diesel demand in July compared to June does not indicate any major blip in the ongoing economic recovery, which will continue in the coming months. “Diesel consumption saw a jump in June because of pent-up demand after the lockdown... Besides, the onset of monsoon in July also reduced demand for diesel [for irrigation],” he said.
SC Sharma, an energy expert and a former officer on special duty at the erstwhile Planning Commission, said: “High consumption of diesel in June occurs due to harvesting and to some extent DG [diesel generator] based electricity demand. However, as monsoon enters, the agriculture and power demand is largely met from monsoon water as also wind power and hydro power. Accordingly, diesel demand goes down by 15% to 20% during July, August every year.”
According to the latest Industry Consumption Report published by the PPAC, “certain restrictions at state and district levels coupled with lower demand for products and services” moderated the speed of recovery in diesel consumption to the pre-Covid level..
The report pointed tot key factors affecting diesel consumption in July. “Unlock 2.0 has carried forward the economic recovery but in moderated pace. Most of the industries across states are operating at 70 to 80% capacity due to a subdued demand,” it said.
Weekend lockdowns and other restrictions imposed by state and district administrations to curtail the spread of Covid-19 have also affected the consumption of diesel, it said. While rural demand on account of agriculture related activities continues to drive consumption growth, flooding in Bihar and some northeastern states has also affected consumption, it added.
The report said diesel consumption in July 2020 was also affected by other factors such as slow growth in sales of commercial vehicles and a decline in port traffic. “Commercial vehicle sales as reported by individual companies are showing a slow pace to recovery. Major automobile companies have reported a fall in sale of M&HCV [medium and heavy commercial vehicle] by about -70% and of LCV [light commercial vehicle] by about -30%,” it said.
According to the report, the traffic handled at major ports in India recorded a contraction of 13.2% and collectively they handled 51.5 million tonnes of cargo during July 2020 as against 59.3 million tonnes handled during the corresponding period of the previous year.