Diesel burns hole in pocket, surpasses petrol in Delhi

Diesel has become the most expensive auto-fuel in the country overtaking petrol for the first time in a long while as the oil marketing companies on Wednesday raised its pump prices by 48 paisa while keeping the price of the other fuel unchanged.

In the Capital, diesel is now priced at Rs 79.88 per litre while petrol prices remains at Tuesday level of Rs 79.76 a litre. This makes diesel the most expensive auto fuel in the basket for the first time in the Capital.

In other metros, however, diesel maintains the tag of cheaper of the auto fuels with price differential between diesel and petrol prices remaining at about Rs 8 litre in Mumbai, Rs 6 a litre in Chennai and Kolkata.

Due to differential taxation structure at both Centre and the states, diesel prices in the country has always remained much cheaper than petrol. Globally though, diesel is the expensive of the auto fuels as the product has higher cost of production.

What has now made diesel prices higher in the capital is the Delhi government's decision early May to increase Value Added Tax on diesel from 16.75 per cent to 30 per cent and on petrol from 27 per cent to 30 per cent. This increased the retail price of Diesel and petrol in Delhi by Rs 7.10 and Rs 1.67 a litre, respectively.

With central taxes on the two products already reaching identical levels, the Delhi governments move hastened price parity between petrol and diesel. Currently, the central excise on petrol is Rs 32.98 a litre while that on diesel it is Rs 31.83 a litre. VAT on petrol in Delhi is Rs 17.71 a litre that on diesel is Rs 17.60.

"Diesel price movement is sharper in international market and if oil companies follow the global price trend, diesel prices will remain higher. It is after many years that this happened and is expected to sustain for some time unless government changes the tax structure on petroleum products again," said an oil sector expert from one of the big four audit and advisory firm asking not to be named.

Interestingly, even in India the base price of diesel is expensive than petrol. According to Indian Oil Corporation (IOC), while base price of petrol in Delhi currently comes to Rs 22.11 per litre, the same for diesel is higher at Rs 22.93 per litre (effective from June 16, 2020). This has been the case for a long time but retail prices of petrol came higher than diesel due to central and state taxes.

While movement of retail pricing is being seen with a sigh of relief by vehicle owners whose cars run on petrol, those buying the relatively expensive diesel cars are now repenting on their decision. The development is also being seen with caution by automobile companies who have spent millions to ramp up their facilities for diesel run vehicles. The expectation is that demand for such cars will now fall causing more damage to companies where sales are already impacted due to persistent economic slowdown and now the spread of COVID-19 pandemic.

"The pricing development would push automobile companies to apply strategies being followed by companies in western markets where diesel run cars are not sold on fuel pricing differential but on overall make and quality that puts them ahead of petrol run cars," the the expert quoted earlier.

Yes, but for commercial vehicle sector the rising price of diesel had not been welcomed. In fact, the commercial transport sector had time and again threatened strike against the move to raise fuel prices.