Fuel consumption recovered in August after a two months of declines, according to the government data published a day after Oil Minister M. Veerappa Moily unveiled plans to cut demand in the world's fourth largest oil consumer.
India is struggling to control a rising current account deficit and wants to reduce fuel demand which is a major component of imports but is unwilling to cut diesel subsidies ahead of an election that must be held by May.
Any substantial rise in prices of diesel could anger the price-sensitive rural vote bank, which account for about 70 percent of the country's population, and damage the ruling Congress Party's prospects in state polls and general elections, political analysts say.
Moily hopes to save $5 billion from fuel conservation steps and another $8.5 billion by raising imports from Iran, which accepts part payment in rupees, after the Prime Minister called for a $25 billion cut in oil import bill.
Diesel consumption, which makes up over 40 percent of local fuel sales, declined 0.4 percent in August from a year ago, but this trend could reverse in the following months because of hectic canvassing and political rallies ahead of polls.
Local oil product sales, a proxy for oil demand in India, totalled 12.34 million tonnes in August, according to Petroleum Planning and Analysis Cell (PPAC).
Diesel use had eased in last few months as improved rains cut demand from the farm sector which use gasoil-fuelled generator sets for irrigation.
Consumption of petrol, a deregulated commodity, rose 12.9 percent in August from a year ago, the data showed, indicating still robust demand despite slowing economic growth.
Asia's third-largest oil user consumed 0.9 percent more fuel in April-August, far lower than the PPAC's estimated 4.1 percent rise for this fiscal year.
Economic growth was 4.4 percent in the June quarter and fuel demand is closely correlated with the state of the economy.
Oil purchases from overseas makes up a substantial cost of India's import bill, but as the country has surplus refining capacity it earns foreign exchange through exports of products.
PPAC estimated India's April-August net fuel imports at $40 billion including oil purchase of $60.2 billion and fuel imports of about $4.23 billion while exports would total about $24.4 billion.