NEW DELHI: Monday marked the sixteenth straight day of fuel price hikes for Indian consumers, petrol and diesel rates having surged by a record Rs 8.3 and Rs 9.46 per litre respectively in little over a fortnight. The day’s diesel prices reached yet another all-time high—Rs 78.85 per litre in New Delhi—while petrol was being sold just shy of the Rs 80 per litre mark at Rs 79.56.
This steep rise is already having a marked impact on the cost of road freight transport. According to S P Singh, senior fellow at the Indian Foundation of Transport Research and Training (IFTRT), truck rental rates have increased by as much as 10-12 per cent over the fortnight beginning June 7.
“The impact of the fuel price hikes have been observed on trunk routes pan-India,” he said, adding that freight costs had already been rising over the summer. “Very low demand meant transporters weren’t able to get assured return loads and tried to protect their margins,” he noted.
Transporters say, however, that the increase in freight prices have been “nowhere close” to the over 20% rise in diesel rates seen over the summer in places like Delhi.
“We are in a position where we cannot pass on the full impact of the fuel hike to consumers. Prices are a factor of demand and supply, and both remain very low,” said Naveen Kumar Gupta, secretary general, All India Motor Transport Congress. He also pointed out that since fuel prices are revised daily, it was very difficult to factor in these changes for trips which generally last over several days.
“Most transporters are currently running on huge losses and over 60 per cent of the fleet remains idle,” Gupta said. Singh agreed: “Current fleet utilisation is only at around 30-35 per cent”.
India’s fleet of commercial trucks currently stand at over one crore light, medium and heavy duty trucks, and Gupta says that around 20 crore people are dependent on the sector. “Even if we do pass on the entire impact, these 20 crore people will still be affected, since prices of food and other articles on the ground will also increase,” he pointed out.
The revenue game
While rising inflation is always a concern when fuel prices hit record highs, the Centre and state governments both are also facing an unprecedented shortfall in tax revenues from other sources. Fuel—demand for which has begun trending steadily upwards—may well be the government’s only “sure-shot” source of income at this time.
In fact, the reason why fuel prices stand at record highs at a time when crude oil rates are over 40% cheaper than their January level is due to mammoth excise duty hikes implemented since mid-March—a cumulative Rs 13/lire on petrol and Rs 16/litre on diesel. With demand rising and crude prices firming up, OMCs have been forced to pass on the duty hikes to protect profit margins.
“It is being done from the point of view of protecting revenue. GST collections have been falling since services have ground to a halt... So, fuel becomes one of the few ‘sure shot’ avenues to earn income,” noted Madan Sabnavis, chief economist, CARE Ratings.
As reported earlier, TNIE’s calculations indicate that the Centre has earned over Rs 15,950 crore in additional revenue since mid-March due to the excise duty increase. If left unchanged, the tax hikes are likely to result in over Rs 1.5 lakh crore in additional revenue for the current fiscal year 2020-21.
With WPI-based inflation in the negative zone and fuels commanding a much smaller weightage in CPI, rising fuel rates will likely not lead to a large, immediate shift in inflation numbers. But, they will “at some point” have an effect on prices of food and other consumer goods, Sabnavis said.