Diesel Consumption Falls; Price Hikes Are Working

3 comments Written on December 23rd, 2013 by
Categories: FuelPrices

The Diesel Price hikes seem to be working. Consumption has fallen as prices have gone up this year, and the year-to-date consumption is now about 0.3% below last year. This is around the lowest growth in 8 years!

Remember Diesel prices have been increased in big chunks after long periods until Jan 2013, when the increase was Rs. 0.50 per liter per month or such.

Diesel Consumption and Price

Source: IOCL for prices (ex-Delhi), PPAC for consumption.

You can see here that consumption seems to slow down in terms of growth as prices go up. We’re currently going through the first negative growth since 2005.

Note that I have used Year-to-Date (YTD) values of “April to Month” which tells us cumulative numbers. The cumulation is like a moving average, in that it smoothens out the numbers, but then it’s not highly accute. The original year on year figure is very seasonal and thus, very volatile. You can see that graph:

Diesel absolute consumption

Petrol Too Shows The Link Over Longer Time

Petrol prices have been decontrolled even earlier and sharp increases in price have resulted in a fall in consumption.

Petrol Consumption Falls

While petrol prices are flat, current diesel prices are 14% greater than last year. We need to keep raising Diesel prices until we don’t need to subsidise refiners again. (And to promote competition, we should set it in stone that we will no longer subsidise fuel).

Impact:

  • Fall in fuel consumption means an economy that’s slowing down
  • Inflation should then come down as economic activity stagnates or slows.
  • Car sales have been seeing degrowth over the previous year, and even though there are more cars (in absolute terms) on the road, people seem to be driving lesser on aggregate. This should impact store sales in large retail shops, transport income etc.
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http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

3 comments “Diesel Consumption Falls; Price Hikes Are Working”

Very true observation Deepak.

I have put my car to rest and doing office commute by bike,somedays work from home. The reason is not only the cost factor but also to avoid the inconvenience of carjam in evening.

I noted the carpool trend is setting on. Now lot many doing that.

My kid’s school buses are getting jam packed. They have done something in name of route rationalisation and kid’s bus have hardly any space to put bags on.

I do not know if u have access to industrial and non industrial usage figures.

The dip may be largely due to industrial slowdown and not necessarily she to price. It is a known fact that non industrial use of diesel is hardly 10% of which passenger vehicles is even.lower.

Happy fine tuning

Road transport usage is 60% of India’s diesel consumption. See NIPFP report of 2010-11 for details. Bulk diesel is about 11% of total diesel consumption (including railways and STC). Industrial usage is 10%.

There is a new reporting fraud going on where they have moved much of the consumption to “miscellaneous services” instead of transport (till 2011 it was being reported as transport). They refuse to detail out what they mean by “Miscellaneous services”. The oil companies report more than 75% sales at pumps rather than bulkheads.


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