The strict nation-wide lockdown in April & May 2020 had a severe impact on the economy and the consumption of petroleum products. Localized lockdown measures in April & May 2021 because of the COVID-19 second wave also affected the consumption of Petroleum products. However, the situation is better than in 2020.
In an earlier story, we analysed the consumption trend of Petroleum products and observed that the consumption fell by around 9% in 2020-21. This was also the first time since 1997-98 that the consumption was lower than the previous year. As per the information available on the website of Petroleum Planning & Analysis Cell (PPAC), a recovery during the last two quarters of 2020-21 in the consumption of Petroleum products was observed.
With their key role in enabling logistics, movement of people & goods, and being a key input to various industries, the trend in consumption of petroleum products is one of the indicators of the state of the economy. Accordingly, the low consumption during the initial months of 2020-21 was reflective of the slowdown in the economy caused by the stringent lockdown to contain the spread of the COVID-19 pandemic. The increase in consumption in later months marked the phase-wise opening of the economy and the subsequent recovery.
Amidst this recovery process, the country was hit by the second wave of COVID-19 infections from the beginning of March 2021 resulting in a record number of new cases and forcing various states to again impose a variety of restrictions in April & May 2021. With the situation slowly improving, many states have begun relaxing the lockdown regulations. We look at the trends in consumption of Petroleum products during the first two months of the current financial year i.e., 2021-22 to understand the impact of the lockdown measures in various states.
Consumption of Petroleum Products in May’21 lowest for that month since 2015-16
The impact of the second wave of COVID-19 was evident in April 2021 itself. The Total consumption of Petroleum products during April 2021, was 170.3 Lakh Metric Tons (LMT) whereas it was 187.75 LMT in March 2021. However, the consumption during April 2021 was comparatively higher compared to April 2020 when there was a stringent nationwide lockdown.
The consumption fell further during May 2021 to 151.05 LMT. Unlike in the case of April 2021, the consumption during May 2021 is lower than the corresponding month in 2020. In fact, the consumption during May 2021 is the least in the month of May in the last seven years. The consumption in May 2015 was 154.93 LMT.
Despite a decline in May’21, consumption of Petrol higher than April & May 2020
The consumption of Petrol during April 2021 fell to 23.86 LMT compared to the consumption in March 2021. The consumption fell further to 19.9 LMT during May 2021.
The trend in both these months is reflective of the lockdowns in various states due to the second wave and the resultant fall in economic activity. Despite this decline, the consumption of the Motor Spirit i.e., Petrol is higher than April & May of 2020.
During April 2021, the consumption was nearly 2.5 times that of April 2020. In fact, if the Petrol consumption during April 2021 is considered, it is only less than the consumption in April 2019 but more than any other year.
Even in the case of May 2021, the consumption is higher than the consumption of 17.7 LMT during May 2020. It must be noted that May 2020 was the beginning of the relaxation of various restrictions while it is only towards the end of May in 2021 that states began relaxing lockdown measures.
While the second wave does seem to have an impact on Petrol consumption, the fall is not to the extent witnessed in 2020. With most of the states opening up during June 2021, consumption is expected to improve in the coming months.
Except for 2020, consumption of Diesel during May’21 lowest in more than 10 years
As seen in the case of Petrol, even the consumption of Diesel witnessed a declining trend during April & May 2021 compared to March 2021. The consumption of Diesel was 72.24 LMT during March 2021 which fell to 66.83 LMT in April 2021 and fell further to 55.35 LMT in May 2021.
Despite this declining trend, consumption is still higher than in the same months of 2020. The consumption during April 2021 is more than twice the consumption during April 2020. However, the level of consumption during April 2021 is the lowest since 2016-17 for the same month.
The month-month consumption for May indicates that the consumption in 2021 is slightly higher than in 2020. However, except for 2020, the consumption of Diesel in May 2021 is the least in about 10 years since 2011-12.
Apart from the consumption for personal & commercial transport vehicles, Diesel is key to the movement of goods across the country as well as public transport. The trend in consumption of Diesel presents a better picture of the economic activity. Like in the case of Petrol, while there is a decline in Diesel consumption during the second wave, it is better than the situation in 2020.
Contrary to earlier trends, consumption of LPG reduced in May’21 compared to May’20
As highlighted in our earlier stories regarding the trend in consumption of Petroleum products, in contrast to Petrol & Diesel, the consumption of LPG has increased during 2020-21. A month-on-month comparison for the months of 2020-21 indicates a higher consumption of LPG during the same months in the previous year.
After an increasing trend during the last four months of 2020-21, the consumption of LPG fell to 21.14 LMT during April 2021. However, this is still slightly higher than the consumption during April 2020. While the consumption increased to 21.68 LMT during May 2021, it is still lower than the 22.94 LMT consumption in May 2020.
The dependency on Domestic LPG during the lockdown could be one of the reasons for the increase in LPG consumption in May 2021 compared to April 2021. At the same time, the higher consumption in May 2020 could be due to stricter lockdown implemented last year resulting in most people staying at home and cooking by themselves.
In the case of products like Petroleum Coke, Bitumen, Naphtha, etc. which have an industrial purpose, there is a decline in consumption during April & May 2021 compared to March 202. However, the consumption is higher than what was reported during the same months in 2020. What it means is, while there is an impact on the industrial & economic activity due to the second wave of COVID-19, the situation is better than during the same time last year.
Despite the fall in consumption, substantial increase in Excise duty Collections
While there is a fall in the consumption of Petroleum products during 2020-21, the revenue generated through excise duty on Petroleum products has increased. As per the information available with PPAC, the contribution of excise duties on petroleum products to the Central exchequer during the first 9-months of 2020-21 is Rs. 2.36 lakh crores, which is already Rs. 13,000 crores are more than the Rs. 2.23 lakh crores collection during the entire year of 2019-20.
The hike in Excise duty on Petrol & Diesel by the Central Government during May 2020 is the reason for the higher collections. In an earlier story, based on the information available with the Controller General of Accounts (CGA), we observed that in contrast to the trends in Direct Tax-revenue collection, the revenue from Excise duties has increased in 2020-21. The increase in the revenue through Excise duties on Petroleum products is a key contributor to this increase. As of date, only the information of the first 9 months of 2020-21, is available with PPAC. Based on the provisional figures for overall Excise duties collections as per CGA, it can be ascertained that the contribution of excise duties on petroleum products to the Central exchequer in 2020-21 could be much higher than in 2019-20.
The revenue through Excise duties in April’21 is Rs. 154 crores which are higher than the collections in April 2020. Though the collection in April 2021 is less than in March 2021, this has been a general trend where-in the collection during the first month of the financial year is usually lower.
Featured Image: Consumption of Petroleum Products
