By Ruma Dubey

Mr.Gupta decided to buy a car.  He knew about the hole it would make in his pocket but he was tired of the commute on local trains and other public transports. He knew diesel was costing lower than petrol. And he saw that companies were also introducing almost all their variants in diesel too. He went to the showroom and decided on his diesel car. But just before he signed the cheque for the car, there was news that diesel prices could go up further. In fact there was a possibility that diesel prices could go up by Rs.10 over the next 10 months – Re.1 hike per month.

Today, diesel in Mumbai fuel pumps cost Rs.53.40/litre while petrol costs Rs.73.74/litre. And if this price hike of Rs.10 does come in, it could mean that diesel will cost Rs.63.40/litre. This in turn means that the gap between diesel and petrol could get narrow to an extent where it probably makes no sense to go for a diesel vehicle.

Even if one feels that Rs.10/litre could mean a lot of savings one should then look at the cost of the car. Almost every company prices its diesel variant 15-20% higher than the petrol version. This means that much longer time required to recover the premium paid for the diesel car. That apart, the cost one pays for maintaining and servicing a diesel car is much higher than a petrol car. Thus apart from the premium being paid, you end up paying more for service charges too.

The only big advantage is the mileage. For a country obsessed with “kitna deti hai” maybe this is enough reason. Diesel cars give 15-20% more mileage than petrol cars and most have better emission controls. But then again, you tend to get the benefit of this mileage only if you travel long distances, around 40-50 kms per day.

Many companies have started reporting a shift back of demand to petrol cars. Toyota and GM, both have reported a 5% rise in demand for petrol cars after the diesel price hike. 82% of Hyundai’s sales now comes from petrol and Maruti remains mainly a ‘petrol’ car as its diesel engine capacity is pretty low. Around 30 new cars are waiting to be launched and many of them diesel. So demand for diesel cars will be there over the next few months. But with the price gap narrowing down fast, this advantage may no longer exist.

The diesel price hike is inevitable; it may have got postponed for now but it is sure to happen. Given the burgeoning fiscal deficit, the Govt is desperate to raise money and oil companies are also demanding a price hike. Chidambaram will do all things possible to raise money and he now sees diesel as a medium where money can be raised as it is being misutilized – it is no longer the fuel which runs the trucks which fuels the economy. A BMW diesel car? Seriously, how can one justify the subsidy on fuel for that?

Thus if the price gap is only going to come down, it makes no sense for Mr. Gupta to buy a diesel car, unless he drives over 50 kms per day.