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Petrol Price Hike & Its Effects


Since the last three years, price of petrol has shifted gears and shown sudden acceleration making it reach from Rs. 40 to Rs, 80 in no time, compared to the time it took to reach Rs. 40. Due to such fast acceleration, common man has been vastly affected. So on the occasion of Bharat Bandh against price hike; let’s see what has cost the prices to rise and what the increased prices may cause.

- Why it happened?

Some say the reason is petrol shortage in global markets, some say rising imports, some say increased crude oil prices and now THEY say fall in rupee as compared to US $. But current scenario of slowdown in global market, rising dollar prices and increase in crude oil prices combined together has caused a situation which calls for price hike (but it does not justify Rs. 7.5 hike). It might also be that THEY can’t increase the price of diesel so they easily put the burden on petrol only. This is just to give you a very short background of why it MAY have happened. We better not comment on it over here, economists are there to deal with this better. Only thing we know is, this rise is not justifiable, that’s it.

-What will it cause?

As this is the fact that prices have reached Rs. 80 mark and may also reach horrible figure of Rs. 100 someday. So we will see what it may cause. The first thing it has caused is Bharat Bandh today. (Please note following are speculations as per current situations, it’s not like experts comment or so).

  • Drop in car sales: The first and foremost thing which will happen due to petrol price hike is car sales will take a bad hit overall. Many car buyers will think of switching to diesel or CNG/LPG powered car, but as we all know that diesel commands higher price as well as longer waiting periods and CNG/LPG powered cars are limited and not so well accepted by the common buyer.  So this will delay the decision of buying a car for the common man until this settles down or some good option comes out. So we may once again see Alto losing top spot to diesel powered alternatives. Also the period of April – September is usually low scoring for automobile companies; this will further tumble their figures.
  • Surge in demand for diesel fuel and diesel cars: As the gap between petrol and diesel prices is becoming wider than Grand Canyon, it’s quite obvious that demand for diesel fuel and diesel powered cars will go up further. This trend started a year ago, when people still used to calculate initial cost and operating costs, average usage, rate of interest,etc to decide the breakeven point to make decisions. But then the situation changed that operating cost increased so much that people rushed to diesel. This has put tremendous pressure on systems involved in diesel engine manufacturering. Also this change was so sudden that no one can cope up or cater to this. It’s not so easy for any manufacturer to invest in diesel immediately, considering the uncertainty currently happening in India’s market and world market as well. At the same time the manufacturing capacities for petrol cars, in which they have already invested huge amount, will run underutilized. As there will be more diesel cars on the road, the fuel required to run those also will face high demands. This will cause a complicated economic situation. The fuel which is subsidized by an amount close to Rs. 15 for commercial usage, will be utilized for personal use. Rise in sold volumes will result in more money going in as subsidy and in turn THEY will put the burden of this money on common man in one way or the other.
  • Higher discounts thus lower profit margin: Business is run to get profit out of it, as maximum as possible. But today manufacturers like Maruti Suzuki, Tata Motors and Hyundai are offering huge discounts up to Rs. 50,000/- on their petrol powered cars. Obviously these discounts are given at the cost of their profit margins. So this makes business less profitable and hence difficult to manage. This hampers manufacturer’s opinion and certainty about biggest automobile markets.
  • Uncertainty about future: Today THEY have increased the price of petrol so situation is suddenly favoring diesel vehicles, tomorrow THEY may increase excise duty on diesel cars such that diesel cars will cost 8-10 % more. Seeing this trend there is no clear visibility in forecasting about the future situation.
  • Volatility may cause delay in new investments.
  • Alternative fuels will emerge: As of now we see the demand for CNG/LPG powered cars is quite limited. The reason may be the lack of power while operating on gas or said damage to the engine. Thus acceptance of the people is restricted and this is justified because we are running cars designed to run on petrol/diesel and not gases. So future may show us many cars coming out running on alternate fuels like these gases, high ethanol petrol, electricity, hybrid or even hydrogen. Possibilities are many but situation should force the manufacturers to think in that direction. After all fuel reservoir is going to deplete anytime in the next 20-30 years.
  • Ethanol mixed Petrol and Bio-diesel: These are the two names which we heard some time ago and then they dis-appeared into the cloud. These two fuels have promising facts in them. Like reduced pollution, increased mileage and most important is self-dependence for producing those. We will not be dependent on any country or any company for importing fuel so price also can be regulated and kept under control.
  • New technologies (like GDI engine) may get priority: Recently we heard about Delphi developing Gasoline Direct Injection engine technology. This technology combines advantages of diesel with that of petrol. If this comes to reality then it’s a win-win situation for the automobile industry.

These are the various outcomes petrol price hike will cause. Please share your opinions on what are the other effects this price hike will have on the world of automobiles.

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{ 13 comments… add one }

  • Rohan May 31, 2012, 8:22 pm

    Suraj, good article. Just to let you know that the production of Bio-diesel is not feasible at all. The cost to produce is way above the actual cost it could save. Hence we will never hear about bio-diesel being commercialized.

    Reply
    • Suraj June 1, 2012, 9:00 am

      @Rohan:
      Ya i Agree…. but every new technology is expensive during its initial phase..
      But if THEY decides to do it then cost of production can comedown..
      Main advantage will be lesser imports, lesser dependability and hence lesser price..

      Reply
  • Faisal Khan May 31, 2012, 9:33 pm

    Suraj, excellent analysis. My take is that the prices have been increased so that later (read near elections), they can reverse the prices to look all good in the eyes of the common man.

    Reply
  • Suraj June 1, 2012, 9:07 am

    Reply
  • Sushil June 1, 2012, 10:49 am

    I see people taking a bit more care in the way they use their petrol vehicles (mainly middle class) …no unnecessary trips, switch off at signals , driving slower etc. I also see more usage of public/company transport where available and even carpooling catching on.
    Also the humble cycle may re-emerge soon as the means of travel within crowded city areas.
    Not everyone can go an buy a diesel car – esp when the number of km travelled is low – it makes sense to look at public transport/cycles/2 wheelers etc.

    If there are Govt subsidies – then pure electric vehicles may see a good sales run – provided there is electricity available for them ;-). Without subsidies on the purchase price – its a bit doubtful.

    Reply
    • Suraj June 1, 2012, 11:46 am

      “If there are Govt subsidies – then pure electric vehicles may see a good sales run – provided there is electricity available for them ;-). ”

      Well said Sushil..
      The picture will get clear with Mahindra launching NXR..

      Reply
    • Faisal Khan June 2, 2012, 5:41 pm

      Sushil, problem with electric vehicles. You don’t have electricity, so you burn fuel in generators and voila we are back to square one.

      Reply
      • Sushil June 3, 2012, 7:26 am

        Yes Faisal = if electricity was only from Diesel Generators – but ideally solar, hidel, wind etc plants need to be setup and used more – then the electricity generated would be “cleaner” :-).

        Reply
        • Faisal Khan June 6, 2012, 10:41 pm

          Sushil, that will take some time and by then we would anyways have no option but to move to alternate fuels.

          Reply
  • Hunky June 1, 2012, 11:41 am

    Diesel cars costs more.. Now days poor owns petrol alto or a two wheeler compare to rich using SUV or large BWM driven on diesel !!

    :(

    still they get subsidies !!

    Reply
  • Ninu June 1, 2012, 11:58 am

    FAS…
    Diesel Car=Extra 70-80,ooo Rs VS Cng Car (company fitted)=extra 45-50,000Rs
    Diesel Car= full boot space VS Cng Car= Zero boot space
    Diesel=40.35 Rs VS Cng=35.45Rs
    Diesel=18-20 kmpl VS Cng=16-18 kmpkg
    Diesel=45Ltrs fuel tank VS Cng=9Kg
    Diesel=810-900 kms Range VS Cng=144-162kms
    Diesel=Available all India VS Cng=Delhi,Mumbai,Ahemdabad,Chandigarh only
    So why CNG? Why not Diesel?

    Reply
    • Faisal Khan June 2, 2012, 5:46 pm

      Ninu, diesel cars are not available off the shelf. Also owners are always in the fear that de-regulation of prices might happen anytime.

      Reply
  • antar pantar chumantar November 12, 2012, 12:45 pm

    its the worst

    Reply

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