The diesel pricing reforms initiated by the government in January last year coupled with the economic slowdown have dented the consumption of petroleum products, especially diesel. Diesel accounts for 75% of price-regulated petroleum products consumed in the country and 43% of overall fuel consumption. Retail diesel prices have been hiked 50 paise a month since January last year almost unfailingly, but have been put on hold since last month. Subsidy on diesel has long been a big drain on the exchequer and incremental increase was done to check the growing under-recoveries of state-oil companies. India is the worlds third-largest consumer of petroleum products.
But despite the slowdown in consumption of petroleum, Indias oil import dependence continues to increase. And even the softer crude prices globally did not help as the countrys oil import bill remains at heightened levels of $155 billion. Domestic production of oil and gas has been declining in the past couple of years which has pushed up the countrys dependence on foreign crude. In FY14, domestic oil production slumped 0.3% and gas production was down 13%. The new government will have to accelerate oil reforms in the sector to enhance domestic production and free up prices.