Diesel price hike positive, bold step by govt: SIAM

SSandilya, president, SIAM, says that the government has taken a very positive and bold step to increase the price of the diesel; this move will help to narrow down the gap between diesel and petrol. He is of the opinion that the government should let the oil companies increase the prices of petrol, but reduce the duties on petrol.

Below is the edited transcript of his interview to CNBC-TV18.

Q: SIAM was proposing move on diesel prices, but no additional increase in excise duty on diesel vehicles, what does this mean. The kind of skew that we were seeing towards diesel vehicles, do you believe that that trend will ebb now?

A: Yes, I think so. The government's decision to hike diesel price by Rs 5 a litre is an extremely welcome move and in line with SIAM recommendation. It is a time that the gap between the petrol and the diesel prices are reduced. So, I think it is a good and bold decision.

Q: Strangely, even the petrol prices have de-regulated and oil marketing companies are losing Rs 6 per litre on petrol. They haven't moved on petrol. What is your view on this?

A: My view is that petrol price too should have been increased a bit. The gap between the petrol and diesel should come down. This move will at least reduce the subsidy element to that extent. In the case of petrol, I think that the government should let the oil companies increase the prices, but reduce the duties on petrol.

This is in case the government doesn't want can take the total impact on the customers because the duty on the petrol is also very high and I think the government can take some step on that account.

Q: What will this mean as far as sales and demand is concerned, because it was really as far as the passenger car side was concerned driven by diesel. We have already seen SIAM getting extremely worried about being able to hold onto your guidance is this going to impact sales even further because diesel demand is going to be dampened?

A: The consumers will continue to buy diesel vehicles as there are economies in terms of fuel efficiency and should not be sales should not be seriously impacted.

Overall, industry being down is quite okay, but that does not auger well saying that we should not increase diesel prices. I think these two are totally independent decisions. From a perspective of commercial vehicles, as it is of course the supply of commercial vehicles is more and the demand freight rates are not going up to that extent.

The diesel price hike will have impact on freight rates going up. But I think we should take it in the stride and move forward because as a country the fiscal deficit needs to be controlled and diesel being one of the subsidised fuel cannot continue for too long. So, this increase is a very welcome and positive move and I hope the government continues with it to ensure that ultimately we will reduce this subsidy gap between petrol and diesel and ensure that the overall subsidies are cut to an significant extent.