Auto fuel prices continue to give sleepless nights not only to consumers but the government as well, with elections round the corner and the Opposition stepping up its attack.

Diesel, the most popular transport fuel in the country, has seen a spike of ₹3.72 a litre from July 29 till date. It sold at ₹71.34 a litre in Delhi on Tuesday, steadily rising over daily price revisions from ₹67.62 a litre levels on July 29. Higher prices also mean transportation costs going up.

According to SP Singh, Senior Fellow and Coordinator at the Indian Foundation of Transport Research and Training (IFTRT), truck rentals and retail parcel freight charges were up in the first two weeks of August by 4- 5 per cent, when diesel price had increased by ₹1.30 a litre. However, most are waiting for September numbers to come in for a clearer picture to emerge.

 

 

No impact on auto sales

Companies such as Mahindra Logistics alter the prices every month after any change in fuel and other costs. Mahindra Logistics CEO Pirozshaw Sarkari said: “One of the main components of transportation is fuel and it basically is a pass-on.”

But do high prices lead to a major decline in diesel consumption? “Not really,” said a petrol pump owner. “There is a drop, but not a huge decline. At present, the decline in consumption is also because of the rains.”

The Petroleum Planning and Analysis Cell concurs that the present price levels of diesel do not translate into a tapering of consumption. Fuel costs zoomed to the previous record levels of ₹69.30 a litre in May this year. But diesel consumption during the month increased, both sequentially and annually, to 7.55 million tonnes.

In fact, car sales numbers indicate that they are hardly impacted by rising diesel costs. Automakers, especially in the commercial vehicle segment, saw a growth in sales in August. Most of the companies, including Ashok Leyland, Volvo Eicher, Tata Motors and Mahindra & Mahindra, reported double-digit growth annually.

In the passenger vehicle segment, too, diesel engine-oriented manufacturers such as Mahindra & Mahindra and Tata Motors saw growth in sales. However, Maruti Suzuki India has seen a dip in diesel vehicle sales over the past few months. Its petrol:diesel car sales ratio has changed from 60:40 to 70:30.

Though the government is adopting a wait-and-watch approach, those in know say it is left with limited options in dealing with a spike. “Yes, we are studying the ground reactions, but we are also aware that our options are very restricted,” said a government source. “In fact, even our own (BJP-run) States cannot be taken for granted as far as fuel price is concerned.”

Bringing down the excise duty by a rupee or two will not serve the purpose, said an official, adding: “Last year the Centre had reduced the excise duty on fuel and the Finance Minister had appealed to the States to reduce the local taxes, but only Goa responded.”

The bulk of government revenues (both Centre and States) comes from fuel taxes. There is a ₹15.33 a litre excise duty and ₹10.46 a litre VAT on diesel. Till now, four States and one Union Territory have reduced taxes on auto fuel.

In fact, the elections may also compel the Railways, the largest bulk buyer of diesel, to find means to pass it on to the consumers. Instead of a direct tariff hike, it may tinker with revenue generators, such as food, parking and cancellation charges.

The Railways has already been increasing its pace of electrification to control costs. More electrification will lower the diesel fuel costs. It is also increasingly converting its diesel locomotives to electric ones.

The higher diesel costs also play havoc with inflation calculations. For statistical purposes, diesel is part of the fuel and energy group in the Consumer Price Index (CPI) with a weight of 7.94. Diesel alone weighs 3.10 in the Wholesale Price Index. So the changes in retail prices of various fuels prices impact the overall retail inflation numbers.

(Inputs from Mamuni Das, S Ronendra Singh, Shishir Sinha and Richa Mishra)

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