All round effects: See how the diesel ripples

Published: 15th September 2012 09:16 AM  |   Last Updated: 15th September 2012 01:04 PM   |  A+A-


People blanch at any hike in petrol prices but it is diesel that fuels the economy more.

Being a vehicle fuel, petrol has a significant impact on our economy but the effect of a diesel price hike can be like the cascade of a drum roll.

A Ranga Reddy, retired economics professor at Sri Venkateswara University in Tirupati said the first major impact of Thursday’s hike in diesel prices is likely to be on perishable products like vegetables, fruits, poultry, meat and marine products.

So, the relief being felt because vegetable prices did not rise significantly on day on of the diesel price hike is at best temporary.

The next to feel the impact will be commodities like rice, oils, wheat, pulses, sugar, and spices. Third will be goods such as building and construction material and raw material for industrial products.

Agreeing with this trajectory, B Siva Reddy, economics prof at Osmania University, says that the burden of the fuel price hike will have an immediate effect on essential commodities but the time frame for the effect to be felt may vary from product to product.

Vegetables, being perishable commodities, and their prices being dynamic on a day-to-day basis, will be affected most.Dairy products will be affected but little later. Durable products and capital goods will follow.

G Vijay, economic professor at Hyderabad Central University explains that a fuel price hike triggers effects along two channels: one through an increase in transportation costs and the second the cost of power.

Since diesel is the fuel used in a majority of vehicles engaged in the goods transportation, an increase in the price of fuel will affect the price structure of the goods being transported.

Diesel is a fuel used in power generation by industry. It is also the fuel used for almost all energy-driven farm equipment. Cost of agriculture inputs will increase, which will effect the output.

An economics don from Andhra University says the effect might not be immediate or uniform on all products. Sooner or later, it is all bad news.

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