Indian refiners processed 3.82 million barrels per day (bpd) or 16.15 million tonnes of crude last month, 8.7% lower than in July, government data released on Thursday showed.
Crude oil throughput in August recorded its largest year-on-year contraction since April, when it posted its steepest decline since 2003.
Weaker refining margins and a slide in fuel consumption have prompted refiners to cut crude processing and lower output.
Fuel demand posted its biggest monthly decline since April last month, as a surge in coronavirus infections continued to throttle economic activity and transportation. [O/INDIA2]
India has been consistently reporting the world's highest daily tallies of infections and its 5.7 million coronavirus cases only trail the United States.
"We have pared back our expectations for the pace of consumption recovery in India due to a largely unabated spread of the virus there," Barclays Commodities Research said in a note earlier this week.
"Virus trends in India have been the most concerning recently, but government restrictions have been slowly easing even there... recovery is likely to be much slower compared to the initial rebound and will likely come through in waves."
Indian refiners operated at about 76.1% of their overall capacity in August compared to 83.3% in July, the data showed.
Top refiner Indian Oil Corp (IOC) operated its directly owned plants at 66.7% capacity, as per the data.
The refiner expects local gasoline and gasoil demand to reach pre-pandemic levels in the first half of fiscal 2021 and sought to expand its petrochemical capacity to off-set weaker fuel refining margins.
Reliance, owner of the world's biggest refining complex, operated its plants at about 75.8% capacity.
By Nakul Iyer