Petrol Price Hike: The Story So Far

The government may have finally bowed down to pressure with a partial drop in petrol prices but the token Rs 2 reduction hasn’t quite cut it for a majority of the people. ZigWheels conducted a flash poll on its Facebook page to gauge public mood asking fans if the reduction in prices was satisfactory enough. Seventy two per cent of the roughly 100 people who took the poll responded with an emphatic “No, I want a complete rollback!” About 21 per cent were somewhat happy with the price reduction but expect a higher rate cut. Only a measly 6 per cent supported the government’s efforts calling it a fair cut.

The negative sentiment is echoed by auto industry officials who feel the rollback notwithstanding the current high petrol prices will have a serious impact on the auto industry and petrol car sales. “Around 75 per cent of Maruti Suzuki sales come from petrol cars,” said Mayank Pareek, Head-Marketing, Maruti Suzuki. “Last year, due to petrol price increase, there was a drop of 15 per cent in the sale of our petrol cars. At the same time, diesel sales for the industry are growing. While diesel capacity is being over utilised, petrol car capacity remains under utilised,” he added.

While companies like Hyundai and Tata are offering discounts and special schemes on its petrol models to stimulate demand, Maruti plans to make up for the decline in petrol car sales by increasing its diesel volumes. “Last year, we sold around 2.43 lakh units of diesel cars. This year will sell 4 lakh diesel cars, said Pareek.

However, even that plan stands in jeopardy with the Finance ministry mulling an increase in the excise duty on diesel vehicles. According to figures compiled by the government, passenger cars and SUVs account for 15 per cent of diesel consumption – a claim that has been rejected by Society of Indian Automobile Manufacturers (SIAM). The industry body says that personal cars make up for only 1 per cent of the total diesel consumption in the country while SUVs and taxis account for 5 per cent. Currently, diesel cars attract excise duty ranging from 12 per cent to 27 per cent based on their size and engine capacity. With diesel cars already commanding a higher price than petrol models (which in turn amounts to higher revenues for the state), a hike in duty will only end up reducing demand for passengers cars overall. Read more: Duty on diesel cars may go up

For now, the government is busy chalking the best possible way out of this difficult scenario and it’s looking at these three possible solutions: 1) Coax state governments to reduce levies on petrol. 2) Increase excise duty on diesel passenger cars. 3) Wait till June 15, when oil companies review petrol prices again based on international prices and readjust prices if needed. Whether the price correction will be for better or worse, time will tell.