"The government should increase fuel prices on a quarterly basis"

Ba, Malkit Singh, Chairman — Core Committee, AIMTC says fuel price hike will affect small transporters most of whom are owner-drivers and entrepreneurs.

By Nilesh Wadhwa calendar 15 Apr 2022 Views icon2444 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp

What is your view on the increase in fuel prices?
After 137 days of keeping the prices unchanged, the government has hiked prices 12 times. Effectively, a litre of diesel has gone by at least Rs 8.4. From the start, we have been asking that the fuel prices need to be kept under control, as it has cascading effect affecting the road transport sector and the economy.

It is a well-known fact that a lot is dependent on road transportation. Vehicles operating on the roads keep the country moving. Economic growth is, therefore, dependent on this. Since the pandemic, life for all truckers over the last two-and-a-half years has been very difficult time. Now just as the situation is coming back to normal, the future looks grim.

In our industry, almost 85 percent of people are small transporters who own one to five vehicles, many are owners plus drivers and entrepreneurs. Any revision on fuel prices directly affects the transportation business. Fuel accounts for 65 percent of our operational expense. When the price of diesel increases by almost Rs 9 in less than two-weeks, how will they absorb that cost? It will naturally be passed to the customers, which in turn will be passed on to the end user/consumer.

Ultimately, this will have a bearing on the price of essential and non-essential goods.

In 2021, the peak price of diesel was Rs 106 per litre and when the government realised that the prices of diesel was on the higher side, it implemented a correction/revision in the excise duty. We are just asking the government to use the same formula/ strategy to keep the fuel prices in check.

What impact has high fuel had on freight charges?
I believe the impact will be above 15 percent. There are two types of business in transportation — long-term contract and spot business.

In the contract business, there is a clause that links a change in freight charges to that of fuel. So if the price of fuel comes down, freight charges will come down as well. This review is done on monthly, quarterly or whatever duration the parties have agreed to. It is not practical to increase the freight charges everyday concurrently with the fuel price hike. Naturally, it has to be averaged out after a month or a quarter.

All we want the government to do is increase fuel prices but on a quarterly basis. This will help everyone plan their operations in a better way. For instance, if a truck is travelling from Mumbai to Kolkata, which takes around 12 days, and the price of diesel has increased 9 times during the journey, how will a business manage this?

Are you hopeful that the government will intervene and check the fuel price hikes?
It is not just the road transport industry that is feeling the impact, but everyone is. Are we heading to a situation that is like the current crisis in Sri Lanka? If things continue like this and freebies are not stopped by the government, the future will not look very bright. These concerns have been shared with the prime minister in a meeting with top bureaucrats.

What is the current capacity utilisation for the road transportation industry?
I am happy to state that current capacity utilization is good and is in the region of almost 85 percent capacity utilization. The factors impacting the remaining 10-15 percent is because of vehicle breakdowns and lack of drivers. Having said that, an area of concern is that margins in the trucking business are coming down and the transporter is finding it very difficult to fulfill their repayment commitments. If our incomes fall, it is a challenge to manage our expenses. There will be crisis in the long-run. I believe that if fuel prices need to be controlled, there should be an upper limit to it. After that, the government should look for ways to generate revenues. As is well known, fuel and liquor are two key contributors to the government’s revenue. It is time for the government to look at alternate sources of income and not just depend on these two.

Lastly, what is the average distance covered by trucks at present?
This is dependent on demand and supply. On an average, a good quality truck covers a distance of 280-300km per day. These trucks can travel around 600-700km per day if the bottlenecks such as tolls and no entry barriers were removed.

This feature was first published in Autocar Professional's  April 15, 2022 issue.

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