Aditi Gupta Monday, 29 June 2020

Diesel: Most Expensive Auto-fuel in Delhi

On 24th June 2020, Delhi saw a record-breaking hike in petrol and diesel prices. With this current increase, diesel has become the most expensive auto-fuel in India as oil marketing companies raised its price by Rs.9.58 per litre.

For the last 15 days, the oil marketing companies (OMC’s) are consistently increasing petrol and diesel prices every day. The collective increase in diesel price in the fortnight is Rs.10.49 a litre. This is a substantial fortnight hike in auto-fuel prices since April 2002 when our then prime minister Shri Atal Bihari Vajpayee’s government deregulated the oil fuel prices to bring them in tune with the international prices. Diesel prices in India have always remained cheaper than that of petrol due to differences in taxation structure at both center and state level, but, globally diesel is one of the expensive auto-fuel due to its higher cost of production.

The major reason for this rise in auto-fuel price has been a sharp increase in the Value–Added Tax (VAT) on diesel by the Delhi state government last month. The Delhi state government hiked the VAT on diesel from 16.75% to 30% while on petrol it was raised from 27% to 30%.

While this movement is being seen with a sigh of relief by the owners of petrol run vehicles, while those who had bought relatively expensive diesel cars are now regretting their decision. The demand for diesel vehicles is also expected to fall causing damage to automobile companies where car sales are already affected because of persistent economic slowdown and now this global spread of COVID-19 pandemic.

Ajay Bansal, President of All India Petroleum Dealers Association (AIPDA) said “This is the highest price for diesel in the history of Delhi and for the first time, diesel prices are seeing above petrol. In the last six years, the price of diesel, that was traditionally considered as a backbone of the economy and in which the agriculture sector is heavily dependent on has sharply increased. Earlier, there used to be a consistent Rs.12 per litre difference between both the fuels.”

Since 16th April 2014, after the first Narendra Modi government took charge. The diesel prices were as low as Rs.55.49 a litre in Delhi, which is closing at Rs.80 a litre now. But it is quite interesting to know that over 66% of the price component of diesel in Delhi just includes central and state taxes only. K Ravichandran, senior vice-president, ICRA commented “This hike in diesel is a temporary phenomenon. Traditionally, cracks of diesel and petrol were in the same range. However, diesel prices were lower on account of lower taxes. This may lead to a demand-related slowdown and higher inflation too”.

Major metropolitan cities like Mumbai, Kolkata, and Chennai continues to have lowered prices of diesel. In Mumbai, the petrol price is at Rs.86.54 a litre, compared to Rs.78.22 a litre on diesel. Petrol price in Kolkata has touched Rs.81.45 a litre while diesel is at Rs.75.06 a litre. On Chennai, the price of petrol is seen at Rs.83.04 a litre and Rs.77.17 for diesel.

For the commercial vehicle sector, this sharp hike in the diesel price has created havoc. In fact, the commercial transport sector has time and again threatened to strike against the move to raise fuel prices.

The Congress Working Committee (CWC) has said in a statement that, “If the government does not alter the course on this ill-advised trajectory then it will have the ruinous consequence of pushing many middle-income households to the margins of poverty and pushing the poor to total economic ruin”. Congress is warning that they will launch a ‘Jan Andolan’ across India soon against the hike as no government should impose such unacceptable strain on its people especially when the country is in the throes of a global pandemic.

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