Fallout of diesel price hike

The country's largest passenger and goods transport network — the Indian Railways — may soon find its fuel expenses widening by about nine per cent (Rs 720 crore), according to industry sources. This is a result of the Government's decision last Friday to increase diesel prices by Rs 3 a litre. However, it is not clear if the increased costs will immediately be reflected in passenger fares.

The Railways' annual consumption of high speed diesel (HSD) is about 2.4 billion litres (2009-2010). At a Rs 3 per litre hike, its annual fuel bill is likely to go up by about Rs 720 crore. At present, the annual fuel bill is about Rs 8,000 crore.

Railway Ministry officials, however, are unwilling to comment on whether this hike will be passed on to the passengers or freight users. Going by past trends, the decision on passenger fares will have to be taken at a political level. As for freight, the rail tariffs are governed by a dynamic pricing policy wherein they keep changing depending on market conditions. The container train operators are sure to take a hit on account of the first- and last-mile movement. This is because such transportation is undertaken via roads. Container train operators such as Concor, Gateway Distriparks and Inlogistics will be hit only if the Railways increases the haulage charges.

“We will be impacted if the rail haulage is increased. But, the first- and last-mile transportation, which is around 30 per cent of our cost, will go up for container train operators, and has to be passed on,” said Mr Sankalp Shukla, Member, Executive Council, Association of Container Train Operators. Mr Shukla is also the Director of container train operations firm Inlogistics Ltd.

Impact on Truckers

Road freight rates have already started ballooning by around 9-10 per cent on key routes. This is both because of increased fuel costs and a rise in other operating expenses, such as insurance, toll, vehicle interest rates and driver expenses.

“There will be a near 15 per cent hike in freight rates after the diesel price rise, For example, the Hyderabad to Delhi route will involve an additional freight rate of about Rs 2,000,” Mr Pawan Gupta, President of the Hyderabad Goods Transporters Association, told Business Line .

The diesel price hike has prompted road transport operators to hike freight rates which, they fear, may add to inflationary pressures. Transport operators in Hyderabad, who operate about 5,000 trucks to various destinations across the country, have hiked, or are in the process of increasing, freight rates by an average of about Rs 1.30 per km.

Mr M. K. Janardanan, of Chennai-based Okay Transport, said that some clients ask the truck operators to absorb the price increase up to Rs 1, but allow any additional increase to be passed on. He says the price increase will be around eight per cent for a 9-tonne truck. Typically, the operators enter into short-term and long-term contracts, which also take care of any price increases in fuel price, he said.

Logistics service providers Transport Corporation of India and Safexpress said that they may take a small hit on profitability in the short run. For long-term contracts they have built-in escalation clauses to take care of any increase in input costs.

“Profitability will come under pressure in the short run. We do have escalation clauses built into the contracts with customers. But it is not a linear process.

There is usually a time gap between the hike and the escalation," said Mr Vineet Kanaujia, GM-Marketing, Safexpress.

One of the two main truckers' bodies, All India Motor Transport Congress, has also threatened a nationwide strike from July 1 over the rise in fuel prices. The association will take a call at a meeting on July 27 in New Delhi.

Bus Services

The President of the Karnataka State Private Bus Owners' Federation, Mr K. Rajavarma Ballal, told Business Line that the increase in the price of diesel by Rs 3 a litre will have an impact on private buses operating in the State.

Asked if bus fares will be increased, Mr Ballal said that a meeting of the association's members will be called to take a decision.

There are around 7,000 private buses in Karnataka. On an average, a bus uses around 100 litres a day. Adding State taxes, the effective hike in diesel will be more than Rs 3.5 a litre, he added. Karnataka has one of the highest taxation rates for fuel.

Criticism on the Government's move to increase diesel prices has also come in from various political circles. Not only have the Opposition party BJP and the Left protested, but even UPA allies such as Trinamool Congress and Samajwadi Party have also slammed the Government's move.

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