After the government adopted a dual pricing system for diesel on January 17, sales to bulk customers have dropped 41 per cent, while sales through retail outlets rose 13.2 per cent.
According to industry figures, oil companies' bulk diesel sales fell from 1,028.5 kilo litres in December 2012 to a mere 607 kilo litres in April.
"We have seen a gradual decline since January, and our estimates show it is about 41 per cent. A lot of bulk customers, especially industrial and agricultural users, have shifted to the retail platform," said Ajay Bansal, general secretary of the Federation of All India Petroleum Traders.
Of the total annual consumption of 70 million tonnes (mt) in 2011-12, the industry's bulk diesel sales stood at about 11 mt. Of this, about three mt was accounted for by the defence services and the railways. The steepest fall was recorded by state transport utilities and fleet operators, which consumed just four mt. States that have seen a major shift to retail sales include Andhra Pradesh, Rajasthan, Karnataka, Tamil Nadu and Gujarat.
In 2012-13, the share of diesel to the overall subsidy was Rs 92,061 crore, while total under-recoveries stood at Rs 1,61,029 crore. Industry experts fear a diversion of subsidised fuel could lead to a higher subsidy bill. The difference between the price of diesel sold at retail and bulk rates is Rs 9-11 a litre. Industry estimates show for April, the government would pay at least Rs 280 crore in subsidy to bulk consumers which aren't eligible for it.
"One of the options to curb the diversion is to make bulk diesel MODVAT-able (diesel would be treated as an input cost and excise and value-added tax would be set off against the corresponding tax on the finished product). It may still be a complex solution. So, the government can also think about removing the compartmentalisation of pricing, making it completely market-determined," said Kalpana Jain, senior director, Deloitte in India.
In April, growth in diesel consumption was 4.2 per cent; overall high-speed diesel consumption growth for 2012-13 was 6.8 per cent, compared with 7.8 per cent in 2011-12.
That month, the Madras High Court provided relief to the Centre and oil marketing companies in a dual diesel pricing case, setting aside an interim stay on selling diesel at the market price to the Tamil Nadu State Transport Corporation.
December 2012 1,028.5 kilo litres April 2013 607 kilo litres
- Government decides to go for phase-wise decontrol and also dual pricing of diesel on January 17, 2013
- Demand in 2012-13, 70.1 million tonnes, out of which 11 mt was through bulk sales
- Total number of fuel stations in the country - 41,971; total depots - 1,800
- Indian railways has 4,000 diesel engines for mainline operations. Each consumes 600,000 litres of diesel a year at a cost of Rs 4 crore
- Agricultural sector consumes around 18.3 per cent of all diesel sold