Commercial vehicles the biggest beneficiary of diesel subsidy

Consumption by non-transport sector at 30%

The government’s move to seek a higher dose of diesel price increase, on the basis of a report by former Planning Commission member Kirit Parikh, has become a political issue in the run-up to the general elections, with many believing such a step will hit farmers hard. However, a survey by the petroleum ministry shows the country’s heavy & light commercial vehicle segment, and not the agriculture sector, has been the biggest beneficiary of the subsidy the government provides on this fuel.

If the total cost borne by the government to make up for the loss incurred by oil companies on selling diesel below cost — Rs 92,061 crore in 2012-13 — were to be divided on the basis of consumption, about Rs 12,100 crore would have gone to owners of private cars and utility vehicles (UVs), Rs 8,200 crore to those of commercial cars and UVs, Rs 26,000 crore to heavy & light commercial vehicles and Rs 8,800 crore to buses. Only Rs 12,000 crore of subsidy would have benefited the agriculture sector and Rs 15,600 crore other sectors.

The survey, conducted by the ministry’s Petroleum Planning & Analysis Cell (PPAC) through Nielsen (India), has estimated the share of each sector in total diesel and petrol sold through retail outlets — at the state level, as well as on an all-India basis. The pricing of petrol was deregulated in June 2010 but diesel prices continue to be regulated — oil firms’ underrecoveries on sale of a litre of diesel currently stands at Rs 8.47.

“Subsidy doesn’t make any sense, as the beneficiaries are private vehicle owners and the telecom sector. There are other ways to compensate farmers. Besides, an estimated 10 per cent increase in diesel price will translate into only a 0.5 per cent rise in consumer prices,” said Parikh. The government is to approach the Cabinet for a Rs 5-a-litre increase in diesel price.

According to the survey, the transport sector, accounting for 70 per cent of total diesel sales in the country, is currently the biggest beneficiary of diesel subsidy. Cars, UVs and three-wheelers consume a combined 28.48 per cent of subsidised diesel sold.

Trucks (heavy and light commercial vehicles) account for 28.25 per cent of total diesel consumption, while buses use 9.55 per cent and the railways 3.24 per cent. The agriculture sector consumes 13 per cent of all diesel sold in India — tractors 7.4 per cent, pump-sets 2.9 per cent and agriculture equipment 2.7 per cent. “The government should come out with ways to directly subsidise the agriculture sector through Kisan cards, etc. Otherwise, a major chunk of subsidy money will go into the hands of undeserving people,” said Ajay Bansal, general-secretary, Federation of All India Petroleum Traders.

In 2012-13, total sales of diesel stood at 69,080 thousand metric tonnes (TMT) and those of petrol was 15,744 TMT. While diesel accounts for 44 per cent of the country’s overall consumption of petroleum products, Petrol accounts for 10 per cent. Of the total petrol and diesel sales, more than 99 per cent of petrol and 90 per cent of diesel was sold through retail outlets (petrol pumps). For these, there is no system to capture consumption pattern on the basis of sectors and end-use categories.

The survey was carried out in four rounds, of three months each, across 150 districts in 16 states, covering more than 91 per cent of the total retail diesel sales in the country. A sample of over 2,000 retail outlets was taken for the study. In states like Odisha (82.3 per cent), Bihar (75.2 per cent) and Rajasthan (72.9 per cent), consumption of petrol by two-wheelers was in excess of 70 per cent, while it was very low in states like Delhi, Haryana and Gujarat, where many consumers have shifted to CNG or diesel.