Diesel prices hiked by Rs 5 a litre

September 15, 2012: The government has finally bitten the diesel bullet and increased prices by Rs 5 per litre (excluding VAT) or 12 percent at the stroke of midnight on September 14. Petrol prices have been left untouched. Of the Rs 5 per litre increase, Rs 1.50 is due to the hike in excise duty on the fuel. The balance Rs 3.50 will help reduce the under-recoveries of the oil marketing companies by about Rs 15,000 crore for the remaining part of the fiscal year.

This is the first time that the government has increased prices of diesel in the last two years. In June 2010, the government had de-regulated petrol prices and differed a decision on doing the same for diesel because of its political implications. The decision to increase diesel prices is part of the government’s plan to rein in its subsidy bill.

The steep rise in the price of diesel might set off alarm bells for some automakers who have been introducing diesel variants to drive sales. However, the substantial price differential compared to the much more expensive petrol will not dampen consumer demand for diesel vehicles in a hurry.

In August 2012, passenger cars sales dropped 18.56 percent to 118,142 units, the sharpest fall in around 10 months but more a result of a month-long lockout at Maruti’s Manesar plant which rolls out the popular Swift hatchback and Dzire saloon, and sluggish market sentiment.