Local oil product sales, a proxy for domestic oil demand in Asia's third-largest oil consumer, rose to 11.05 million tonnes in August, government data showed.

In July, fuel demand in India, whose economy is growing just short of 8 percent, rose an annual 3.2 percent.

Local diesel sales, which make up over a third of fuel consumption, rose an annual 6.4 percent in August to 4.57 million tonnes, rising from July's 5.3 percent growth but on a low base from a year ago.

India could use around 5.2 percent more diesel in 2011 and about the same in 2012, a Reuters survey suggests.

Gasoline consumption last month also lagged economic growth at 4.5 percent year on year versus 4.8 percent in July, as car sales skidded for the second month in a row.

Gasoline sales could soften further in the coming months as recently retail prices were increased nearly five percent and interest rates were hiked for the 12th time in 18 months as the central bank battles stubborn inflation.

While India is expected to continue expanding at rates many nations would envy, the country could be heading for a period of reduced growth and stubbornly high inflation.

India's industrial output in July was the weakest in nearly two years while April to June economic growth of 7.7 percent was the slowest in six quarters.

India's crude imports rose an annual 5.6 percent in August, higher than a revised 3.1 percent in July when refiners curtailed crude imports ahead of planned shutdowns in September.

India imported 14.147 million tonnes, equivalent to 3.34 million barrels per day (bpd), of crude in August.

The data for August includes estimated imports and exports for Reliance Industries' export-focused 580,000 bpd refinery at Jamnagar, in western India.

Diesel exports rose 4.6 percent in August while gasoline exports declined nearly 10 percent from a year ago.

Oil products imports declined about 8.15 percent, while exports rose 5.38 percent from a year ago.

Copyright Reuters, 2011