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Lower duty to fuel demand for branded petrol

Excise duty cut has been a long standing demand of the oil marketing companies

Kalpana Pathak  |  Mumbai 

Branded will be cheaper by over Rs 5 a litre. Finance Minister announced reduction of central on the product from Rs 7.50 a litre to Rs 2.35 a litre. The cut has been a long standing demand of oil marketing companies (OMCs). Though the industry had sought a duty cut on branded diesel, too, it has not come about.

Branded fuels are nothing but regular fuels with additives supposed to enhance a vehicle's performance.

The government levies of Rs 15.50 on a litre of branded petrol, compared to Rs 9.20 on a litre of regular Branded diesel attracts of Rs 5.75 a litre against Rs 3.46 a litre for unbranded diesel.

Currently, branded costs Rs 83.08 a litre against Rs 73.60 for unbranded petrol in Delhi. Branded diesel costs Rs 64.95 a litre while unbranded diesel is priced at Rs 57.84 a litre.

“This move is good. It is good for the consumer, as well as for oil marketing companies. We expect sales to pick up now,” said a senior marketing official from Hindustan Petroleum Corporation.

Low demand, coupled with the complexity in logistics, had seen these products vanish from the market. Last year, India's largest oil marketing company, Indian Oil Corporation Ltd (IOC), stopped selling branded diesel, Xtramile, at its retail fuel stations. In 2007, the sale of branded fuel was 30 per cent of the overall sale of unbranded fuel for

“This is a positive move. The differential cost between branded and unbranded fuel will now come down to around Rs 3 a litre. Hopefully, this will bring the customers back to branded fuel,” said a senior official of IndianOil Corporation.

The ratio of branded fuel to total sales of unbranded fuel (conversion rate) for the oil marketing companies had come down to single digits, ranging between five per cent and 10 per cent in various markets. Branded diesel has seen a similar downfall — the conversion rate of 20 per cent in 2007 is now as low as two-four per cent.

In 2009 Union Budget, new duties were introduced on branded fuels, raising the differential between unbranded and branded fuel. Thus, branded fuels took a beating, weaning away truckers who largely patronised both regular and branded diesel.

In September 2012, another blow was dealt, when the government withdrew the subsidy support for branded fuels (though branded fuels are nothing but regular automotive fuels, blended with special additives). It further increased branded fuel prices. Branded petrol was popular with premium and luxury car owners; it, too, began to suffer from waning demand.

With the twin nails wedged in, it became very difficult to stem the downward spiral. The retail network that offered branded fuels has shrunk and forced branded automotive fuels out of the market.

OMCs say they cannot sustain losses in both, branded and the heavily-subsidised, unbranded fuel segments. Hence, they have been curtailing production and footprint.

Complex logistics such as factoring in state taxes and duties have also served as deterrents to distributing branded fuels widely, in the face of plummeting demand.

The network of fuel stations which offered these branded fuels has also diminished. Till May, for IOCL, the number of outlets selling Xtrapremium has come down to 3,421 from 7,071 in the past five years. For BPCL, it is down from 3,589 in 2007-08 to 1,626 in 2011-12. The number of outlets selling branded petrol for is down from 2,861 in 2008-09 to 1,100 in 2011-12.

The concept of branded fuel came in 2002, when the petroleum sector started investing in marketing. With an influx of new-generation cars, public sector oil firms decided to offer variants other than regular fuel. Branded fuels were developed to cater to this need.

The ones launched in India by OMCs were similar to those launched by companies abroad and spiked with special additives which ensure economy in mileage, a smoother ride, quick and better pick-up, engine longevity, and, above all, reduced emissions.

The going was good till 2007, when both sales and network expansions peaked. At that time, the maximum difference between regular and branded was Rs 1.50 a litre for petrol and 25-75 paise a litre for diesel.

First Published: Sat, July 12 2014. 00:44 IST