Diesel consumption in October fell to a 10-month low of 6.8 per cent, after a rather steep increase of Rs 5 per litre on September 13. Growth had slightly moderated in September to 7.4 per cent.
It will bring relief to oil companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum, as diesel accounts for 60 per cent of the revenue loss on sale of the three subsidised products — diesel, kerosene and domestic liquid petroleum gas (LPG).
The diesel price rise came after 14 months. “The bold step of increasing the price is bearing the fruits by partially correcting the trend of dieselisation of the economy,” said an official at the Petroleum Planning & Analysis Cell (PPCA), a data and performance monitoring body of the petroleum ministry.
Before the price increase in September, industrial consumers had preferred diesel to the costlier and market-lined furnace oil. Industrial consumers had latched on to diesel to take advantage of its static price, fuelling demand for diesel to double digit growth for the past several months.
Diesel demand had been growing rapidly after the government decontrolled petrol in June 2010, leading to frequent price rises.
When decontrol was done, petrol was expensive by 26 per cent compared with diesel.
Now, petrol is 42 per cent costlier than diesel. The difference was even higher prior to the Rs 5 increase. Currently, diesel sells for Rs 47.15 per litre in the capital, while petrol is available at Rs 67.24.
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 the share of diesel vehicles rose to 47 per cent from 28 per cent in the previous year.
This trend has further accentuated for most of the current financial year.
Currently, the oil companies incur an under recovery of Rs 9.06 on every litre of diesel they sell. In 2011-12, the under recovery on diesel alone was Rs 81,192 crore of the total Rs 138,541 crore. For the April-September 2012 period, under recovery was Rs 52,711 crore, while the total under recovery on three subsidised products was Rs 85,586 crore.