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S&P Global Commodity Insights in a note has said that India's fuel consumption was up 860,000 barrels per day or 22 per cent year-on-year in May 2022 from a low base in 2021. It said the demand for May was some 80,000 barrel higher than its growth forecast, partly due to stronger-than-expected demand for transportation and the government's announcement of a cut excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6 per litre, which provided some support for demand.

The note stated that on a year-on-year basis, demand growth was driven by diesel, petrol and other minor products, which were up 416,000 barrels per day, 282,000 barrels per day and 161,000 barrels per day, respectively. Kerosene/jet fuel and fuel oil also posted positive growth, rising 67,000 barrels and 25,000 barrels, respectively. But growth was partially offset by naphtha, which fell 95,000 barrels per day, with LPG demand remaining steady.

It further said the new tax regime on petrol and diesel could result in a loss of about Rs 1 trillion to the government in annual revenue due to the lower collection. The more immediate problem is sky-high inflation and the pressure being put on the Reserve Bank of India (RBI) to raise its policy interest rate and tighten monetary conditions.