India's love affair with diesel seems to be petering off. Diesel consumption fell by 6.6% in July 2013 over the year-ago month. According to the Centre for Monitoring Indian Economy (CMIE), this was the third straight month of a y-o-y fall in diesel consumption. "Consumption had declined by 1.9% and 0.13% in the preceding two months," said the CMIE report. "India consumed 5.4 million tonnes of diesel in July 2013 as against 5.8 million tonnes in the previous year.

A couple of factors have contributed to the diesel slump. First commercial vehicle sales are in the doldrums thanks to the slowing of economic activity and the general sentiment downturn. With the sharp rise in diesel prices bringing down the differential with petrol, the car consumers are back to picking petrol vehicles instead of diesel. Last year sales of diesel cars grew around 23% while petrol was in negative terrain. This year both have degrown and diesel has slipped more than petrol.

"Commercial vehicles account for 50% of the total diesel demand in India," said the CMIE report. "Sales of commercial vehicles declined by 11.7% y-o-y during April-July 2013. Lower commercial vehicle sales have impacted diesel demand growth in the last three months." What has also hit diesel consumption is the contraction in industrial production. The index of industrial production declined by 1.1% y-o-y in the June 2013 quarter.

What swung things in petrol's favour, particularly in passenger vehicles, is the sharp rise in diesel prices since January 2013. Diesel prices have gone up by almost Rs 5 per litre since January 2013. The gap between petrol and diesel prices has narrowed down to Rs 19.6 per litre as against Rs 28.5 per litre last year. "Rising diesel prices and heavy taxes on diesel vehicles has resulted in a shift in consumer interest from costlier diesel cars to petrol car, which give a better mileage," said the CMIE report. The proportion of diesel cars in total car sales declined to 42% in July 2013 from 54% a year-ago. Sales of utility vehicles, which mostly run on diesel, fell by 9.1% in July while UV sales fell for the first time since May 2009.

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