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Old 15th September 2012, 04:26   #1
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Default Diesel Price Hike - end of the market skew in favour of diesels?

I bought my Figo last year in April, but made up my mind to buy a diesel around 2 years ago. My logic was that I would almost break even on the lower costs, even though I don't drive much (finished 10k in about 18 months).

To a friend who bought his car around the same time I suggested Ritz petrol - he was going to drive only on weekends, may be 3000km/year.

Over the last year, the prices of petrol climbed and climbed, and the market for petrol cars, at least in 4lac+ segment (basically once diesel is an option), just nose dived.


With some sanity restored now (and expectations for future - the main opposition party is not really making it an issue), even though diesel is still vastly cheaper, would the market skew between diesel and petrol cars begin to correct?

What do BHPians feel?
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Old 15th September 2012, 07:11   #2
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

Boohoo, I just bought myself a VW POLO.

On a serious note though I do believe that the skew has to be corrected eventually because private users have shifted over to diesel vehicles and there is no point in providing subsidized fuel for car owners.

The best bet would be to offer duel pricing - though it is open to abuse by black marketeers.
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Old 15th September 2012, 07:13   #3
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I think that the skew just has to correct.

India cannot afford to subsidise diesel by Rs. 15 per litre over the long term. The fuel subsidy has wrecked the finances of the central government, the upstream oil companies like ONGC (whose supplies are increasingly shifting towards higher cost fields as old fields run out) and the downstream companies (who have negligible profits and massively negative cash flows since the government makes subsidy payments through non tradable, non interest bearing IOUs). So either the government reforms and corrects this distortion with 2-3 more price hikes of similar nature over the next 12 months (assuming oil prices stay flat) or India is forced to do so by a Greek or 1991 style financial crisis.

The baby steps taken by the GOI last week only help reduce part of the increase in subsidy levels over Pranab's budget of February, but even the projected deficit levels are not sustainable, so this is not enough. Don't expect tax reduction by the States either, most state governments are near bankrupt despite the windfall gains they have made from fuel taxes.
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Old 15th September 2012, 07:52   #4
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

The skew will be a long way going. There is VAT etc. also to be fixed. Only excise is being sorted out. I love my Petrol cars even more!
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Old 15th September 2012, 08:21   #5
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

IMO at this point of time, i.e. with this Rs 5 hike, there may be marginal correction.

Still there is huge difference in price of petrol & diesel plus the advantage of better mileage with Diesel.

If Govt continues with such hikes in future as well, which is highly unlikely, only then we can see petrol cars going back to their normal deserving numbers.
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Old 15th September 2012, 08:22   #6
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

The Rs. 5 hike in diesel prices is really nothing more than a small baby step in correcting the whole pricing mess. The govt. was finally left with no option and had to take this drastic step. But this doesn't mean that the price differential will be corrected totally. I don't see them increasing the prices any further for atleast a year now. On the other hand Petrol prices will surely go up once again once the dust over this price hike settles down.
Yes eventually we would all like to see both the fuels priced similarly but that day is not coming anytime soon. So I doubt if buyers will be much concerned right now and would still continue to prefer diesel cars.
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Old 15th September 2012, 09:00   #7
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While I'm all for the move that petrol owners didn't get their nails in the pliers again, I have to say that this is again a case of throwing good money after bad.
Or at least, for us citizens, being fishhooked in the right nostril and being forced to pull out our wallets again to pour out a bigger percentage to support scams and their like.
This is not just for the current governance but for all of them.
Ah, but life will go on till it does. , and we have to keep paying no matter what.

Last edited by mayankk : 15th September 2012 at 09:04.
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Old 15th September 2012, 09:40   #8
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

I myself own a diesel vehicle & this Rs. 5 hike in the diesel price wont really make me worry or break sweat, since i know that Diesel still has a long way to go to catch up with Petrol & this price hike of diesel would burden my pocket indirectly with the price of commodities going up rather than affecting me directly by increasing my fuel costs per month.

This hike in diesel prices may well be rolled back partially (as we all know the norm pretty well by now) & moreover, the petrol prices which are "deregulated" on papers are bound to go up too once the hue and cry over the increase diesel and LPG prices is over.

Diesel cars would still rule the roost for quite a number of years to come i believe !!!
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Old 15th September 2012, 10:13   #9
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

The only realistic way for the government to not raise gasoline prices while reducing the subsidy is to cut taxes. Unfortunately that does not seem to be an option considering how dependent on this tax the government is for funding - primarily their scams - but still.

Petrol and diesel prices will both be lower and have a much smaller gap, thus ending this crazy skew towards diesel cars
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Old 15th September 2012, 10:36   #10
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

I think the skew is here to stay for some time. First and foremost even if priced at par, (diesel due to it being more fuel efficient than the petrol engines we currently have in India), diesel may still be the more prefered variant over petrol. However any skew due to the inherent advantages of the engine is not as much a problem as one that is created due to artificial conditions like a faulty pricing method.

Also we have of late seen, companies adapting step motherly treatment towards petrol counterparts just as it used to be earlier with the diesel. Vento, Rapid, Sunny and now Duster, all are testimony to the fact. While all the above said cars have a good decent diesel mill, the petrol counterpart falls short. Cars like duster sadly dont even provide basic safety features, even as an option. Now this is something that will take time to get corrected. A person looking to buy a vehicle in this price range would be tempted to fall for diesel just because of it being the better option around and not just due to the economics.

I guess this baby step towards bridging the gap was important, but more needs to be done. If indeed the OMC's were making losses and Govt debt increasing due to the subsidies, a higher difference in the pricing of diesel and petrol would lead to a further skewing of demand, more shift towards diesel and even higher losses and its own cycle of events.
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Old 15th September 2012, 10:59   #11
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

The hike in diesel prices is still not high enough to make car buyers move to petrol. What will actually do the trick is the proposed one time tax on diesel cars while buying them. The current difference between petrol and diesel variants is typically 80k to 1.2 lakhs. If this got inflated to say, 2 lakhs or so, then you will see a substantial shift back to petrol cars. But I dont know if the Govt will do this since the whole automobile sector is heavily against such a move, considering the huge investments that all manufacturers have made or they have in the pipeline. And since a Rs.5 hike has been made now, I dont see any hefty one time tax being levied any time soon. Until then it will be diesel cars that rule the roost! Even a further Rs.2-3 hike will not make a difference.
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Old 15th September 2012, 11:04   #12
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

Quote:
Originally Posted by Hayek View Post
I think that the skew just has to correct.

India cannot afford to subsidise diesel by Rs. 15 per litre over the long term. The fuel subsidy has wrecked the finances of the central government, the upstream oil companies like ONGC (whose supplies are increasingly shifting towards higher cost fields as old fields run out) and the downstream companies (who have negligible profits and massively negative cash flows since the government makes subsidy payments through non tradable, non interest bearing IOUs). So either the government reforms and corrects this distortion with 2-3 more price hikes of similar nature over the next 12 months (assuming oil prices stay flat) or India is forced to do so by a Greek or 1991 style financial crisis.

The baby steps taken by the GOI last week only help reduce part of the increase in subsidy levels over Pranab's budget of February, but even the projected deficit levels are not sustainable, so this is not enough. Don't expect tax reduction by the States either, most state governments are near bankrupt despite the windfall gains they have made from fuel taxes.
+1 to this.

I am infact surprised with the current move to hike Diesle price. Not that I dont want it, but surprised that govt have taken such a BOLD step in the right direction. Yes, it will reflect in higher price in other commodities etc etc. But that is not stable. It has to correct itself because, those are not "direct" impact of the fuel rise. It is the middle person who manipulate or site this as a reason to see some more profits.

Most countries handle benefits by Tax returns, exemptions etc. They do not give away things free for a reason.

Quote:
Originally Posted by motorworks View Post
The hike in diesel prices is still not high enough to make car buyers move to petrol. What will actually do the trick is the proposed one time tax on diesel cars while buying them. The current difference between petrol and diesel variants is typically 80k to 1.2 lakhs. If this got inflated to say, 2 lakhs or so, then you will see a substantial shift back to petrol cars. But I dont know if the Govt will do this since the whole automobile sector is heavily against such a move, considering the huge investments that all manufacturers have made or they have in the pipeline. And since a Rs.5 hike has been made now, I dont see any hefty one time tax being levied any time soon. Until then it will be diesel cars that rule the roost! Even a further Rs.2-3 hike will not make a difference.
Hmm, wait for the new urban and congestion tax. This should add some more figures to the diesel (more % than petrol due to again, ex-show room price). This will also help to see the gap in price go wider.

Who knows, it may even end up in owners giving up driving altogether.

Last edited by mjothi : 15th September 2012 at 11:06.
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Old 15th September 2012, 12:03   #13
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

Every Time I used to fuel up my Santro, I used to feel cheated and helpless. I changed that by getting a Figo TDCi, not that there is any joy at the fuel pump now. But I feel, less troubled.

On the other hand, even after 5/- hike, the price difference between petrol and diesel is still high. Realistically I expect the price differnce to be kept anywhere between 15/- to 20/-.
Maybe the petrol prices are gonna be lowered. The Congress government has a simple game plan. Do nothing crazy till election time, soak all pressure by opposition, media, allies. Come election time, the fight like their cornered tigers. Once the Rupee vs Dollar is around the 50/- mark. Fuel prices will ease, not substantially, but a little.
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Old 15th September 2012, 12:19   #14
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

Quote:
Originally Posted by vibbs View Post
I think the skew is here to stay for some time. First and foremost even if priced at par, (diesel due to it being more fuel efficient than the petrol engines we currently have in India), diesel may still be the more prefered variant over petrol. However any skew due to the inherent advantages of the engine is not as much a problem as one that is created due to artificial conditions like a faulty pricing method.
I completely agree with vibbs regarding diesel engines being inherently more fuel efficient. Thermodynamically, the Diesel Cycle is more efficient than the Otto Cycle (used in gasoline engines) which, in layman terms, means that that more mechanical energy is produced by the Diesel Cycle per unit of heat energy contained in the fuel. In other words, a diesel car will give you more mileage for the same quantity (in calories or BTU) of fuel burnt as compared to a gasoline engine of the same BHP.

IMHO, the govt. should encourage 'dieselisation' because going by the above scientific logic, the total consumption of crude oil in the country will actually come down if all petrol engines were replaced with diesel ones. Further, diesel being a lower distillate, it costs less to make a litre of diesel than petrol.

As a diesel car owner, what makes sense to me is that even if petrol and diesel prices were to become the same, I get more bang for my buck by travelling a greater distance per litre of fuel. Furthermore, with CRDI technology giving us highly refined diesel mills, diesel cars have actually become more fun to drive than equivalent petrol cars. I am a retired old fogie who drives less than 10k KM per year and purely from an economics point of view it did not make sense for me to pay 1 lakh more to buy my diesel Swift. But I still went ahead and bought a Swift VDi because it felt much peppier to drive. Only a diesel engine can give you high torque and power at much lower (and practical) RPM's. Except for rallyists, who takes their car to 6000+ RPM to get the officially quoted 'peak power' of their petrol engines?

Personally, I welcome the hike in diesel prices because I am against unrealistic subsidies which hurt the economy in the long run and retard growth. Having said that, I do agree that the govt has political (and economic) compulsions to keep diesel subsidised in the foreseeable future because diesel is used for commercial transportation and right now the level of inflation in India is quite high. But a year or so down the line if inflation falls to more acceptable levels, the price of diesel should gradually be increased.
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Old 15th September 2012, 13:02   #15
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Default Re: Diesel Price Hike - end of the market skew in favour of diesels?

Anyone has any data on how much of diesel in India is being used by private vehicles? Reason I am asking is, assuming 50% or more of Indian diesel is being consumed by private diesel vehicles. Then the right step is to impose a diesel cess on private vehicles. May be a retrospective one time tax too. This will ensure that people stop buying diesel cars for the fuel price difference. People who want to pay for costly diesel to enjoy the diesel performance will do so. The aam junta who wants to save a few bucks at the fuel pump will stop doing so.
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