The Indian petroleum minister Mr Veerappa Moily has made it clear that the diesel deregulation is here to stay. To wipe out the huge subsidy burden that the Indian government is facing due to diesel being sold at subsidized prices in India, state owned oil companies like Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum have been directed to hike diesel prices by about 40-50 Paise(100 Paise make 1 Indian Rupee) each month. These small but methodical periodic hikes in the prices of diesel will continue until diesel prices in India reflect the international(non-subsidized) figures.
Here’s official word coming straight from the Union Petroleum Minister of India, Mr Veerappa Moily,
Until further orders, oil marketing companies can increase it (diesel price) by 40-50 paise (per litre) every month.
With that, prices of diesel are expected to be hiked every month to make up for the over 10 Rupee loss that the oil companies currently incur due to the subsidized price of diesel sold in India. If you’re in the market for a diesel car, it is time to reconsider your decision if you drive under 600-800 Kilometers a month. By reconsidering, we mean that you could actually look at petrol cars if your monthly running is limited as the higher cost of diesel, coupled to the higher purchase price of diesel engined cars will actually mean that a petrol car is cheaper to own and run.
These periodic hikes in diesel price are also expected to balance out the skewed petrol vs diesel car sales, which has so far been heavily tilted towards diesel engined cars. For instance, 8 out of every 10 Maruti Swift hatchbacks sold in India are diesel engined versions with only 2 cars in 10 being petrol versions. The same story holds good amongst other car brands as well who sell cars with the petrol and diesel engine options. This move from the Indian government could make many car makers re-evaluate their plans of building diesel engine manufacturing factories.
For instance, Hyundai India has been sitting on the fence regarding the setting up of a diesel engine factory in India. Currently, the car maker imports all its diesel engines from South Korea. The hike in diesel prices and the resultant softening in diesel car demand could prompt Hyundai to go slow on its diesel engine plant. A similar story could pan out across other car makers as well with them re-focusing on petrol engined variants. All in all, the Indian car industry could see a shake up in the next 12 months if the periodic diesel price hikes happen on schedule.