Diesel consumption growth falls after price hike


The Rs 5 per litre hike in diesel prices in September appears to have helped the economy correct the trend of dieselisation modestly. The country saw the lowest growth rate in 10 months in diesel consumption in October even as the share of diesel vehicles sales, which was rising sharply over a few quarters, remained stagnant in the month.

“There has been some moderation in sales growth of diesel vehicles post the hike in the price of diesel fuel,” said an executive of a leading passenger car manufacturer, requesting anonymity.

“In the last fiscal, diesel vehicle sales grew 35 per cent to comprise 47 per cent of the passenger vehicle market. This proportion increased to 54 per cent in the first quarter and then to 57 per cent in the second quarter. The share remained stagnant in October,” the executive added. Data for November share is not available.

Incidentally, October also saw a 10-month low growth in diesel consumption. The diesel price rise of September came after a 14-month gap from the previous hike. “The bold step of increasing the price is bearing fruit by partially correcting the trend of dieselisation of the economy,” said an official from an oil marketing company, who also did not want to be named.

In the passenger car segment, the moderation in sales of diesel variants have been sharper. “After the diesel price was raised, we noticed that the share of diesel-powered passenger cars in the segment declined to 47 per cent from the peak of 53 per cent registered in the first half of the fiscal,” said Sugato Sen, deputy director general, Society of Indian Automobile Manufacturers, an auto industry body.

According to data collected from the ministry of road, transport and highways and the petroleum ministry, passenger vehicles account for less than seven per cent of diesel consumed in the country. This, however, had risen of late due to the robust growth in the sales of diesel-run vehicles. While truckers account for around 38 per cent of diesel consumed in the country, the share of buses in diesel consumption stands at 10 per cent.

Before the price increase in September, industrial consumers had preferred diesel to the costlier, market-lined furnace oil. Industrial consumers had latched on to diesel to take advantage of its static price, fuelling demand for diesel to double digit growth for the past several months.

Diesel demand had been growing rapidly after the government decontrolled petrol in June 2010, leading to frequent price rises. When decontrol was done, petrol was expensive by 26 per cent compared to diesel. Now, petrol is 42 per cent costlier than diesel. The difference was even higher prior to the Rs 5 increase. Currently, diesel sells for Rs 47.15 per litre in the capital, while petrol is available at Rs 67.24.

An official at Hindustan Petroleum Corp Ltd said it was slightly early to say if the impact was solely because of the increase in diesel price. “If we see this happening for the next two-three months, we can call it a trend with greater certainty,” he said.

Diesel accounts for 60 per cent of the revenue loss on sale of the three subsidised products — diesel, kerosene and cooking gas. Currently, oil companies incur an under recovery of Rs 10.03 on every litre of diesel. In 2011-12, the under recovery on diesel alone was Rs 81,192 crore of the total Rs 138,541 crore. For the April-September period, diesel under recovery was Rs 52,711 crore, while the total under recovery on three subsidised products was Rs 85,586 crore.