Diesel is no longer going to be cheap. If the oil companies are allowed a free hand, diesel will be at least Rs. 10 more expensive in the next six months, taking its price to nearly Rs. 65 a litre on average! That’s almost equal to prevailing petrol prices.
There’s no reason to be surprised by this actually. The government decided to deregulate diesel prices back in January this year, but has still taken a controlled approach to full deregulation – prices will keep increasing by Rs. 0.50 per month, according to Petroleum and Natural Gas minister Veerapa Moily. Also see: Why petrol cars continue to beat diesel even with high fuel prices
Diesel is a highly subsidized fuel in India, because a large part of diesel consumption is used for commercial transport. Hiking diesel prices would lead to a drastic increase in transport costs, which would in turn lead to inflation and higher prices for all essential commodities – vegetables, grains etc. The depreciation of the Indian rupee against the US dollar hasn’t helped as well, because India pays for oil imports in dollars. Oil prices too have been fluctuating quite a bit. Also see: How to get maximum mileage from your diesel car
The minister is hoping that by April 2014 (in time for the general elections), the rupee would appreciate a bit and oil prices would stabilize, allowing oil companies in India to make good their losses from under recoveries quicker. Presently, for every litre of diesel sold, state-run oil companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum lose up to Rs. 9.30 per litre. If the rupee appreciates, this gap could be narrowed faster. The minister, however, is not likely to sharply increase diesel prices at one shot in view of the upcoming elections as it would lead to a spurt in inflation and scuttle the ruling party’s poll prospects.
Incidentally, premium diesel fuels such as HiSpeed, ExtraMile and TurboJet, which have additives in them for better engine performance, have been fully deregulated, with prices hovering between Rs. 65 and Rs. 67 a litre. And guess what? Sales at most pumps have dropped by over 90% to nearly nil for these premium fuels! Check out our Diesel Decider tool!
Does it still make sense to buy a diesel car?
So given that fuel prices may soon become equal, just like it is in many parts of the world – does it still make sense to buy a diesel car? Actually, it does – especially for heavy users. Diesel cars are between 25% and 40% more fuel efficient than their equivalent petrol counterparts. However, they are also about 25% more expensive to buy. So if you do drive a lot, a diesel car would still make sense in the long run (although your breakeven period – the point where the running cost of the diesel car would have theoretically been equal to a petrol car – would now increase considerably). Also read: Why diesel cars give more mileage than petrol cars?