The government’s September 13 decision to increase diesel prices by Rs 5 per litre has put the brakes on the double-digit consumption growth of the highly subsidised fuel. According to provisional data, diesel consumption grew by five per cent in September, compared with 9.8 per cent in the corresponding month last year.
The trend will bring some relief to the state-run oil marketing companies — Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd — as diesel alone accounts for 60 per cent of their underrecoveries.
An IndianOil official said the price hike had triggered a tendency to conserve diesel, but better rains in September and improved power situation also seemed to have contributed to lower consumption growth.
The non-revision of price for more than a year had triggered preference among industrial consumers for diesel over costlier and market-linked furnace oil. Industrial consumers had lapped on to diesel to take advantage of its static price and fuelled demand for diesel that grew in double digits for the last several months. According to the data with the government’s Petroleum Planning and Analysis Cell, diesel consumption grew 10.4 per cent in August and 13 per cent in July.
Diesel demand had been growing rapidly after the government decontrolled petrol in June 2010, leading to frequent price hikes. When decontrol was done petrol was expensive by nearly 26 per cent compared to diesel. Now, it is 46 per cent costlier to diesel.
| MIXED BAG Diesel consumption growth in 2012 | |
| Month | in % |
| January | 7.6 |
| February | 11.9 |
| March | 10.3 |
| April | 8.0 |
| May | 9.0 |
| June | 13.7 |
| July | 13.0 |
| August | 10.4 |
| September* | 5.0 |
| *(Provisional data from companies) Source: PPAC | |
Within months of decontrol, the growth rate of petrol also slipped below diesel for the first time in recent history. Growing preference for diesel-driven vehicles and usage of diesel as an industrial fuel also supported the growth rate of diesel. In 2011-12, the share of petrol vehicles in total sales dropped to 53 per cent from 72 per cent in the earlier year while share of diesel vehicles rose to 47 per cent from 28 per cent in the previous year. This trend has further accentuated in the current fiscal.
Currently, the oil companies incur an underrecovery of Rs 11.65 on every litre of diesel they sell compared to a margin of around Rs 1.60 on petrol. The diesel price hike came after a gap of 14 months. In 2011-12, the underrecovery on diesel alone was Rs 81,192 crore of the total Rs 138,541 crore.