The impact of a surge in diesel prices on the fuel's usage in some sectors

Even if we take the increase in prices in Delhi from June 7 till now, a hike of Rs 11.14 will increase the cost for the transport sector by Rs 2,665 cr, for farm sector by Rs 1,053 cr and for private

On June 25, the price of diesel crossed that of petrol for the first time in Delhi, with the heavier fuel retailing in Delhi for Rs 79.88 per litre compared to Rs 79.76 for petrol. On July 1, diesel was retailing at Rs 80.53/litre compared to Rs 80.43 for petrol.

A major reason for the prices in Delhi can be attributed to the state government’s value-added tax. In other cities diesel continues to be retailed very slightly lower than petrol.

However, central excise duties also play a substantial role in keeping the prices elevated, even though global crude prices remain low.

After a span of 83 days during the lockdown, oil companies started increasing prices and have been doing it consecutively since June 7. In that time, the price of diesel in Delhi has gone up by Rs 11.14 per litre, and that of petrol has gone up by Rs 9.18 per litre.

On March 14, the central excise duty on both petrol and diesel were increased by Rs 3 a litre each. Later, on May 5, the Centre again raised the duty by Rs 10 a litre on petrol and Rs 13 a litre on diesel, the steepest duty hike in the history of the fuel.

Around 70 per cent of fuel prices comes in the form of taxes and the oil marketing companies company only deal with 30 per cent base price, that is benchmarked to the international product prices. Based on the last available data of June 16, the base price on petrol was a mere Rs 22.11 a litre, while that of diesel was Rs 22.93 a litre.

While the Centre has stopped giving sector-wise break-up of consumption of diesel or petrol in 2014, data available on research publication portal ResearchGate indicates that as of November 2019, logistics and commercial vehicles were responsible for 43 per cent of the total diesel consumption in India. Seventeen per cent of the fuel was consumed by the agriculture sector, private vehicles consumed 16 per cent, industry 8 per cent and others 16 per cent.

The Oil Ministry’s Petroleum Planning and Analysis Cell does give the monthly usage of petroleum products. Latest data, available for May (a lockdown month) shows that diesel consumption in the country was 5.56 million metric tonnes or 5.56 billion litres

In a hypothetical situation keeping May’s consumption, even if we take the increase in prices in Delhi from June 7 till now, a hike of Rs 11.14 will increase the cost of the logistics and transportation sector by Rs 2,665 crore, for the agriculture sector by Rs 1,053 crore and for private vehicle usage by Rs 992 crore.

Traditionally, taxes on diesel were kept low by governments due to its impact on the economic and agricultural activities due to higher consumption. Based on data available with Business Standard, consumption on diesel increased 125 per cent from a mere 36.6 million tonne (MT) in 2002-03 to 82.6 MT in 2019-20. The prices, on the other hand, increased over three-fold. In May 2014, before the Narendra Modi government took charge, diesel prices were seen at Rs 56.71 a litre.

However, consumption seems to have come out of the lull witnessed in April and May. “We were 40 per cent of normal demand in April. By mid-May, it came to around 70 per cent. Now, fuel demand is around 85 per cent of a normal June month. In gasoline, it is slightly on the higher side at around 90 per cent of a normal June month,” said R Ramachandran, director, refineries, at Bharat Petroleum (BPCL). 

Pinching pockets (Excise duty in Rs/litre)
Fuel	Apr-14	Mar-20	Jun-20
Petrol

9.48 22.98 32.98 Diesel 3.56 18.83 31.83

Fuel price increase in Delhi (Rs/litre)

After a span of 83 days, price started increasing on June 7

Date Petrol Diesel

June 07

71.25 69.39 June 08 72.46 70.59 June 09 73,00 71.17 June 10 73.40 71.62 June 11 74.00 72.22 June 12 74.57 72.81 June 13 75.16 73.39 June 14 75.78 74.03 June 15 76.26 74.62 June 16 76.73 75.19 June 17 77.28 75.79 June 18 77.81 76.43

June 19

78.37 77.06 June 20 78.88 77.67 June 21 79.23 78.27 June 22 79.56 78.85 June 23 79.76 79.40 June 24 79.76 79.88

June 25

79.92 80.02 June 26 80.13 80.19

June 27

80.38 80.40 June 28 80.38 80.40 June 29 80.43 80.53 June 30 80.43 80.53 July 01 80.43 80.53

 

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