How Diesel Price Deregulation Unfolds For You Fellas And Auto Industry?

This kind of timing is remarkable! The union government has deregulated the price of diesel, the lifeline of the commercial and utility vehicles, yet, the immediate effect on price was a Rs. 3.37 a litre (ex-Delhi) drop, against the typical "deregulation = price rise" perception. No resilliance to the bold reform, silently carried out at a time when global oil prices have strangely fallen. And so everyone - auto makers, political parties, industrial houses, etc. seems happy. Yet, a good fodder for thought to think about possible repercussions on consumers and the auto industry.

Until now, diesel was under the price-regulating mechanism with union government subsidising it. Deregulation would mean that , as in case of petrol, the diesel prices are market-linked with no say from the government and retailing rates would reflect the prevailing global market prices. But the tax on petrol is still marginally higher than on diesel.

#1 The Diesel regime in passenger cars is to go

Whether people liked diesel cars or not, they were terrified with Petrol, even the word in itself! For the past eight years or so, diesel cars gathered huge momentum beating their petrol rivals. People were feared of petrol pricing touching Rs. 70 per litre mark sometime back. Diesel prices were also fast rising, but no one actually cared. Almost half of all cars that you see on road are diesels by now.

Fiat's Multijet engines paved the way for refined, efficient diesel cars in India.
This decade saw the diesel technology and engine capabilities soaring like hell. The direct injection systems entered every cars and broke the conventional perceptions about diesels. They almost matched the reliability and performance of the petrols. NVH levels were brought down (though diesels are still horrible and cranky in this regard). Their exceptional fuel efficiency of almost every diesel engines crossing 20kmpl mark endeared customers. To the extent that the Fiat's 1.2l Multijet and the Renault's 1.5 dci engines became the 'National' engines of India, powering tens of cars across segments. We can also trace a bit of inattention (though not greatly) towards improving and replacing petrol engines with newer versions in those cars with high diesel numbers. Now things have started to change. 

I don't mean to say that time has come to etch the epitaph of the diesel cars. Diesels will still be justified for those who drive significantly, say more than 100 km per day or so. Huge mileage gulf would mean many would still prefer diesels (that petrol fear psychosis is hard to fade away).

#2 You get a good price for your Petrol Car

Its a corollary of the above. Resale values for the diesel cars reached the peak in recent years owing to diesel preference in the used car market. Especially in the hatch and entry-level sedan segments. This naturally means that the petrol models did not get fair prices they actually deserve. Some of the niche petrol models in every segments were dealt for scrap prices. some even bartered them for a pair of cookies and toffees!! 

When prices of both fuel become almost equal, this problem is bound to melt away. We could realise that now for past year or so when diesel prices fast rising and petrol maintaining stagnancy.

#3 You can choose new car based on individual preferences

I had this dilemma too while purchasing new car. I was looking for a 'driver's car', so I was firm on a petrol sedan. But then, the fear psychosis of high running costs didn't leave me either. I had to think about resale value too, I'm not going to have the car for a long time. Finally landed up with a diesel car. Selecting a car based on the fuel price will not always match our preferences. If there is an equity is their prices, then we can buy cars based on our requirements like city driving or long drives, performance or mileage, low NVH, etc. There would be no binding to go for diesels.

#4 You can drive into those Reliance gas stations finally!

Those mad guys who signed as franchisee under Reliance Petroleum constructed large retail pumps along highways with massive structures or themes, drive-ins, parking bays, restaurants, or whatever without knowing what will happen over time in the retailing business. These private firms could not compete with the subsidised fuels in pricing and so were thrown out since 2007. All those 3000+ gas stations (including Essar and Shell) rendered unviable - some sold fuels but no one bought due to high price difference, some sold only petrol for sometime, some kept the drive-in restaurants alone active. Most of the time I see only dogs and buffalos (the real ones!) using those abandoned facilities, and at last we can too very soon! Market pricing means bringing back those private wale back to retailing.

#5 Tacitness of Deregulation: Watch out, prices gonna rise again!

Ever heard of market cycle concept from high school economics? The unsaid part of the deregulation story is that once the global crude oil prices rise, the domestic retain prices of fuels will rise too. Oil companies are now free to adjust prices periodically. Market pricings will have ups and downs naturally, and at present we witness the global crude prices plunge to pre-2010 era. Which is unlikely to continue for a long period. Global demand for crude petroleum has not come down due to investments in alternative energy sources. As if more number of Mahindra e2o bring down fuel prices! The true story is, even those e2o and other electric vehicles are not clean since more than 60% of electricity production depends on coal and petroleum! So, global oil prices are bound to rise up as time soon.

It is you and me - the domestic customers who are to share the burden the most once prices go up. We no longer have that cushion of subsidy insulating us from frequent upsurges.

#6 Not that happy a news for truckers!

Those lorry owners associations are happy looking at the drop of diesel prices upto Rs. 4.09 per litre (Tamil Nadu). Surely if someone voices against this move by government that brings down the prices at present, they will be called as crazy and paranoid! But this diwali gift has an inbuilt banger. If domestic prices are to reflect global prices, the CV industry which is dependent of diesel will be hit hard. Anyway, henceforth get ready for frequent protests and strikes against oil companies rising prices more often than earlier.

# N for Neutral

Deregulating fuel prices is a natural phenomenon in a liberal economy. Though it hits the domestic consumers with few exceptional times like present, both the government and the industry wants it. Both were patiently waiting for a perfect timing like this push those reforms. One consoling fact is that diesel has its own practical advantage of being the lifeline of the transportation industry. Any massive price hikes citing global rises are less bound to happen since it would lead to the cascading effect across economy on prices of all essential commodities. Tax on diesel will still be below petrol.

Photo Credit: The Hindu,,,