There used to be a time when the difference between the prices of the diesel and petrol was so huge, that it became the single most reason for most of the people to buy a diesel car, even after realizing that it command a premium of almost a lakh rupees over the petrol version. But ever since the 2009, when the last noticeable reduction was made by the central government, the prices kept on increasing to a level, that the gap reduced to a marginal amount only, resulting in a downfall of the diesel vehicles.
But, giving the much awaited relief to the petrol-heads, the government on 18th October, deregulated the diesel prices, resulting in a price cut of Rs 3.37 per litre. The prices on the 29th January, 2009 were Rs 30.86 in Delhi and before this cut of Rs 3.37, it was Rs 58.97, recording an increase of 28 rupees in last 5 years. In fact, diesel prices had cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013.
"The Cabinet in its meeting on Saturday decided to deregulate or free diesel prices. Retail rates will now reflect international movement in oil prices." said Finance Minister Arun Jaitely. The crude oil prices had reduced significantly this year upto 25% to $83 per barrel. Raghuram Rajan, Reserve Bank Governor, recently advised the government to "seize this moment", since the inflation is at its lowest in 5 years and the prices are not expected to cross $100 per barrel anytime soon.
While some analysts are saying that the recently concluded elections in the 2 major diesel utilizing states is the reason for the move, some skeptics are pointing out that the reason can very well be the low sales of the diesel vehicles, due to the price hike. It is important to note that Maruti, Mahindra and Tata, the three major automobile manufacturers of India, posted a substantial drop in the sales of the diesel vehicles as compared to the petrol ones.
"Consumers can now decide the car type based on preference and utility. Indian auto industry is witnessing a positive momentum, and deregulation of diesel price adds to industry upswing," said N. Raja, Senior Vice President & Director (Sales & Marketing), Toyota Kirloskar Motor Pvt. Ltd, welcoming the decision by the Government to deregulate the diesel prices, especially during the festive season.
Michael Mayer, Director, Volkswagen Passenger Cars commented seconding the N.Raja statement that the "important market drivers like interest rates and fuel prices are now showing optimistic signs for Indian automotive industry, and VW already sees some excitement in the market, and hopes the ongoing festive season fuels positive momentum."
Talking in terms of prices viz-a-viz petrol prices, currently the petrol retails at around Rs 66.65 per litre in Delhi. When compared to the prices of diesel pre-reduction, i.e. Rs 58.97, the margin was only about Rs 7. Now consider this, you drive a car for 15,000 kms in a year and you own a Swift. Considering the average of 12kmpl for the petrol and 16kmpl for the diesel. Calculating the running cost:
Diesel @ Rs 58.97 = Rs 55284
Diesel @ Rs55.60 = Rs 52125
Petrol @ Rs 66.65 = Rs 83312
Now consider the ex showroom prices of both the Swift VXi and VDi. The difference of the price is roughly about 90000 bucks before all the taxation and expenses.
Difference per year on running cost:
Diesel @ Rs 58.97 = Rs 28000
Diesel @ Rs 55.60 = Rs 31000
That means, roughly a difference of Rs 3000 per year you were paying extra for the diesel money just two days back. Considering that if you are keeping the car for minimum 3 years, the diesel engine with the earlier prices will not be able to equal out the hefty amount of Rs 90000 paid on the engine. Whereas, after the price change, you will get roughly Rs 95000 as savings making your car free of the premium you paid.
The reduction will surely bring cheers among the automobile manufacturers and with the ongoing festive season, the sales will get a major push. A good news for the automobile industry, we say!
Also Read: September 2014 Car Sales Analysis