Diesel joyrides may get pricier

Mechanism soon to end subsidy on diesel as car fuel: FM.

The cost advantage of driving a diesel car may soon cease to exist, with Finance Minister Pranab Mukherjee on Thursday hinting at a move towards a mechanism that would not subsidise diesel as car fuel. Diesel is currently about Rs 23 a litre cheaper than petrol in Mumbai. With a more than 30 per cent increase in petrol prices since it was deregulated in June 2010, consumers are showing a preference for diesel-fuelled vehicles, leading to questions whether luxury car owners be subsidised.

While replying to a debate on price rise in the Lok Sabha on Thursday, Mukherjee said passenger cars accounted for about 15 per cent of the total diesel consumption in the country and the government could consider the suggestion to remove subsidy for this segment.
 

RIPPLES IN THE MARKET (Aug 4 BSE price in Rs)
AUTO STOCKS		% chg*
Mahindra & Mahindra	679.25	-4.45
Bharat Forge	294.6	-2.93
Ashok Leyland	24.55	-2.77
Bajaj Auto	1,419.60	-2.46
Tata Motors	913.35	-1.55
Maruti Suzuki	1,200.75	-1.19
OIL & GAS STOCKS		% chg*

HPCL392.43.99 Indian Oil Corp329.353.47 BPCL685.953.15 GAIL465.450.54 Oil India1,307.450.53 * Over previous close   Data compiled by BS Research Bureau

Mukherjee’s statement saw the BSE Auto index losing over two per cent or 178 points. Mahindra & Mahindra took the biggest hit, with the shares falling 4.45 per cent to close at Rs 679.25. Bajaj Auto and Ashok Leyland also lost over two per cent each. Maruti was down 1.19 per cent to close at Rs 1,200.75. Tata Motors lost 1.55 per cent, at Rs 913.35. Later in the day, in an apparent damage control exercise, the Finance Minister issued a statement, saying only an in-principle decision to decontrol diesel prices had been taken. “We are moving in that direction. There are no other proposals under the consideration of the government.”

The government had last year decontrolled petrol prices based on the recommendation of the Kirit Parekh committee, which had also suggested a formula-based increase in the tax on diesel cars. Based on the June 2010 tax levels and mileage difference, the committee had recommended Rs 80,000 additional excise duty. JD-U leader and NDA convenor Sharad Yadav had questioned the policy of providing subsidised diesel for consumption by luxury car owners, telecom tower companies, malls and restaurants.

Mukherjee said, “We can accept your suggestion and try to work out what mechanism could be found out so that this section (diesel car owners) is not subsidised”.

Oil companies are bearing a revenue loss of Rs 6.06 a litre on diesel for selling the fuel below the price it is imported at. The Finance Minister said apart from passenger car owners, it was difficult to touch any other segment. He pointed out that of the total consumption of diesel, 10 per cent was used by industry, 6 per cent by the Railways, 12 per cent by the agriculture sector, 15 per cent by car owners and 8 per cent for power generation. Buses and trucks consume 12 per cent and 37 per cent, respectively.

Mahindra & Mahindra president Pawan Goenka, who is also the president of the Society of Indian Automobile Manufacturers, said: “We are not against dual diesel fuel pricing. The mechanism needs to be carefully defined so that it has the desired effect and cannot be misused. We are assuming the dual pricing will be only for personal use diesel vehicles and not commercial applications.”

The signal from the Finance Minister came as good news for oil marketing companies, whose stocks gained ground on a day the benchmark indices lost more than one per cent. BPCL gained 3.15 per cent to close at Rs 685.95. HPCL and Indian Oil Corporation gained 3.99 per cent and 3.47 per cent, respectively.

Meanwhile, attributing inflation to the rise in international commodity prices, Mukherjee said the government was working to reduce food inflation to 5 per cent from over 8 per cent, without sacrificing growth.

“We want growth. At the same time, we want to have a moderate rate of inflation,” said Mukherjee. His hour-long reply failed to satisfy the opposition and was followed by a walkout by the BSP, SP, BJD, AIADMK and Left parties.

The Lok Sabha later adopted by voice vote the motion expressing concern over price rise and asking the government to take remedial steps.