Rumours are making the rounds that the government is considering increasing the price of diesel by as much as Rs 10 in phases next year. While in the short term this will lead to a lot of hardship, we believe that in the long run things will settle down, like they did with the petrol prices.
The increase is planned to be a rupee a month over ten months for diesel - and kerosene is also slated to increase by a similar amount over the next two years. The state-run companies currently lose Rs 9.28 on every litre of diesel sold, and the last major price hike was of Rs 5, in September this year.
This move will be welcomed by the car manufacturers, who have long claimed that the current dieselisation of the economy isn't sustainable in the long run. However, there will be a few disappointments because nearly everyone has invested a lot of money in putting up diesel engine plants if they didn't have any before, or expanding capacity. Diesel car owners will not be too happy with the price increase, as this will affect resale value but those who will purchase once the hike comes into effect will have reason to cheer, as demand is currently slow - with a bit of bargaining, they can hope to wangle good discounts on their new diesel cars.
Petrol car owners will benefit, but only slightly - the resale value will pick up. Those looking to buy new petrol cars will have to make their purchases early, because once the hike comes into effect, the massive discounts currently being offered won't last much longer.
If you ignore the claims of inflation, the diesel price hike is a good thing - it will bring down the artificially skewed ratio of diesel to petrol passenger cars that exists in our market today.