India's 2017/18 fuel demand seen up 5.8 percent - govt

NEW DELHI (Reuters) - India's annual fuel demand is estimated to grow at 5.8 percent in the fiscal year to March 2018, higher than the previous year, government data showed on Tuesday, indicating improved industrial activity.

Local fuel demand - a proxy for oil demand - in India rose about 5 percent in the last fiscal year as economy slowed in the March quarter after government scraped old notes.

Prime Minister Narendra Modi in November declared notes of 500 rupees and 1,000 rupees illegal tender, taking about 86 percent of total currency out of circulation, in a move that hit sales of cars and motorcycles.

India is likely to consume 205.4 million tonnes of refined fuel in 2017/18, data posted on the website of the petroleum ministry's Petroleum Planning and Analysis Cell showed.

"We expect slightly better than 5 percent growth in 2017/18, only risk is GST (goods and service tax) related. Implementation of GST could slow industrial activity in the small and medium industries and that could dampen diesel demand," said K. Ravichandran, Senior Vice President, ratings agency ICRA Ltd.

From July 1 New Delhi aims to roll out GST, one of the most significant reforms since India opened its economy in the early 1990s. The tax will harmonise a mosaic of state and central levies into a national sales tax.

Diesel demand is estimated to grow 3.8 percent while that of petrol seen rising about 10 percent in this fiscal year, the data showed, reflecting robust demand for passenger vehicles.

A gradual step up in gas demand and improved electricity supply could impact consumption of gasoil in the country. However, gasoil use is still expected to be higher than the last year driven by rising vehicle sales.

India is promoting use of liquefied petroleum gas, used for cooking, to replace kerosene and that would raise sale of the cleaner fuel.

(Reporting by Nidhi Verma, editing by David Evans)