In a historic first for India, retail prices of diesel per litre have surpassed that of petrol, a development that analysts believe is likely to pose challenges for sectors like agriculture, transport, and logistics, as well as the overall economy.
The timing for the hike in diesel prices could not have been worse for the economy and especially agriculture, as they have been slowly limping back to normalcy after the lockdown caused by the pandemic. Retail prices for diesel have been soaring for 18 days. Despite a hue and cry from the public, as well as opposition parties, the central government hasn't reduced fuel prices in tandem with falling crude oil prices.
As per the study titled, "All India Study of Sectoral Demand of Diesel and Petrol", agriculture accounts for 14.1 percent of retail sales of diesel, with tractors and other agricultural implements accounting for 10.8 percent of retail sales. Agriculture pumpsets used for irrigation account for 3.3 percent of retail sales of diesel.
Transport, meanwhile, accounts for 73.6 percent of retail sales of diesel, according to the study.
Experts opine that the skyrocketing diesel prices, which have gone up by a steep INR 10 per litre, will have an impact on the economy and inflation, though it may be marginal as the economy is still coming out of the COVID-19-induced lockdown.
Energy expert Narendra Taneja told Sputnik, "Rising diesel prices will have an impact on the economy but it will remain marginal as overall demand is yet to get back to the pre-COVID levels. Since demand has not come back yet, the inflationary impact will also not be marginal and not that deep. However, there are a number of sectors dependent on diesel".
"Diesel is used by railways, housing societies for captive power generation, heavy industries. and construction and real estate. The impact will be there, but marginal", he added.
Meanwhile, equipment finance company Srei Equipment Finance Ltd believes that high diesel cost impacts construction business unless there is "immediate market re-adjustment in deployment or hiring rates".
"In construction and earth removal work segments often contracts are outsourced to micro and small enterprises for usage of their equipment basis all-inclusive hourly rates. Especially in these segments and the hirer segments, rise in price of Diesel directly and adversely affects spreads unless there is an immediate market re-adjustment in deployment or hiring rates," DK Vyas, MD, Srei Equipment Finance Ltd told Sputnik.
"In fact, even large contractors who bear the cost of diesel in various contracts do get undesirably affected as increasingly, spreads are less owing to severe competition. Needless to mention, all this becomes critical when we understand that cost of diesel forms nearly 50% of the cost of operations of most earth moving equipment," Vyas added.
The ministry points out that the procurement of wheat from farmers by government agencies reached an all-time record-high of 38.2 million metric tonnes on 16 June 2020, surpassing an earlier record of 38.14 million metric tonne achieved during 2012-13.
"This has been accomplished during the trying times of the COVID-19 pandemic under the social distancing restrictions. 4.2 million farmers have been benefitted and a total amount of about $9.80 billion has been paid to them by the government towards the minimum support price for wheat", the Finance Ministry stated.
"As of 19 June, farmers have sown 13.13 million hectares of Kharif (cash) crops (paddy, castor, soy beans, and ground nuts, among others), 39 percent higher than the corresponding period of last year", the ministry added. The government is also bullish on the projections of a good monsoon, which will help the sector.
However, experts tracking the sector claim that since agriculture is heavily dependent on diesel for irrigation, as well as the use of machinery like tractors, issues may arise.
"Now, with the economy opening up slowly, the government has raised diesel prices. This is an additional burden for the farmers as diesel is an important input for ploughing with tractors, irrigation, and transport of the final produce".
Singh also stressed the Indian government has not passed on the benefits of the falling crude oil on the fertiliser.
"Fertiliser prices also move in sync with crude oil prices. That benefit has also not been given to the farmers. We demand the Indian government to provide a relief of Rs. 20 a litre to the farmers on prices of diesel in form of a subsidy".
The steep hike in diesel prices has also impacted the transport sector.
Kultaran Singh Atwal, president of the All India Motor Transport Congress said, "The transport sector has been badly impacted. Only 40 percent of vehicles have been on the roads in the past few months. This has hurt our profitability and now high diesel prices are an additional burden. The transport sector maintained essential supplies during the lockdown. However, this is what we have got in return from the government".