The austerity measures activated by the government to preserve economic stability, reign-in inflation and ensure energy security is putting pressure on India’s demand growth for key transport fuels—diesel and petrol.

Global real time data and analytics provider Kpler said that recent austerity measures suggest Indian policymakers are increasingly prioritising macroeconomic stability, inflation management, foreign currency (FX) preservation and fuel supply security over near-term transportation fuel growth. 

While the measures are unlikely to trigger outright demand destruction, they are expected to materially slow India’s previously robust transportation fuel growth trajectory during the second half of the year, it anticipates.

Elif Binici, Kpler’s Lead Analyst - Modeling, expects India’s 2026 refined products demand growth has been revised downwards by roughly 77,000 barrels per day (b/d), from the previous estimate of 128,000 b/d to around 78,000 b/d. 

“The revisions primarily reflect weaker expected growth in gasoline and diesel demand as higher costs, weaker mobility trends, and recent government-led fuel conservation efforts increasingly feed into domestic transportation activity,” he told businessline.

At the center of the issue is the growing financial stress facing India’s state-run oil marketing companies (OMCs), he emphasised.

Retail prices of petrol and diesel were not raised from April 2022. However, the government has in the current month raised prices three times—one by Rs 3 per litre and twice by 90 paise a litre. (Kpler’s forecast is before the third price rise was announced on May 23rd.)

Government’s austerity measures came amid rising supply concerns with panic buying and precautionary stockpiling reportedly leaving some retailers temporarily short of fuel. 

“Retail prices are likely to continue increasing progressively, although a sudden Rs 25–30 per litre spike still appears unlikely,” Binici anticipates.

Downward rationale

Binici explained that the two price rises will help modestly to reduce OMC under-recoveries, the adjustments remain well below the estimated breakeven levels.

Based on current fuel demand levels and estimated loss allocations between gasoline and diesel, implied breakeven retail prices remain substantially above current pump prices, he pointed out.

“Under current assumptions, gasoline breakeven levels are estimated near Rs 125 per litre versus current retail prices around Rs 103/ a litre, while diesel breakeven levels are estimated around Rs 115-120 per litre versus current prices near Rs 94,” Binici said.

Following the Rs 3 per litre hike in retail prices of diesel and petrol, the Oil Ministry said that OMC losses declined from Rs 1,000 per day to Rs 750 crore daily.

Binici explained that the revised framework assumes the impact from austerity measures, inflationary pressure and weaker mobility trends begins to feed progressively into fuel demand mainly from June 2026 onwards, with the largest downside expected during June-September.

Auto fuels

“Largest downside is assumed within the two-wheeler-dominated commuting segment, which represents roughly 50 per cent of Indian gasoline demand and is expected to be most sensitive to fuel-saving behaviour, weaker urban mobility and government conservation messaging,” he added.

Kpler also expects moderation in discretionary passenger vehicle usage, which accounts for roughly 25 per cent of gasoline demand.

“Diesel demand is expected to remain relatively more resilient given its heavier exposure to freight, agriculture, construction, and industrial activity. However, slower industrial expansion and elevated logistics costs are still expected to weigh on overall diesel demand growth during the second half of the year. As a result, annual diesel demand growth was revised down by 20,000 b/d,” Binici said.

Calls for reduced foreign travel could also weigh on jet fuel demand during the second half of the year, with annual jet demand growth now revised down by roughly 50 per cent, from approximately 11,000 b/d previously to around 6,000 b/d, he added.

Published on May 25, 2026