NEW DELHI Jan 18 India's demand for diesel will
stay buoyant despite its plan to hike the price of the fuel in
small monthly steps, analysts and company officials said on
Friday, and the country will keep up the pace of its exports of
From Thursday, India allowed state fuel retailers to raise
prices by up to 0.50 rupees, or one U.S. cent, a litre each
month to gradually align them with market rates, and has also
freed up the price of gasoil sold to bulk consumers.
The plan aims to prop up public finances without triggering
a popular backlash ahead of 2014 elections as India struggles to
rein in fuel subsidies and hold down its fiscal deficit.
The country's biggest fuel retailer, Indian Oil Corp
, said it now loses revenue of about 9 rupees a litre on
the sale of diesel, meaning the hikes will have to run for about
a year-and-a-half in order to reflect market realities.
"This is a sensible approach and I don't think this will
impact demand because they are going to increase the prices in a
gradual way and people will get used to it," said analyst
Praveen Kumar at consulting firm FACTS.
Despite paring its economic growth projections for the year,
India raised its forecast for diesel consumption ahead of the
decision, as the government launches a push to develop the
India expects diesel demand to rise 8.3 percent in the
fiscal year ending in March, to 1.43 million barrels per day
(bpd), up from a prior forecast of 5.9 percent.
It exported about 416,000 bpd of diesel in 2011/12, the bulk
of that by Reliance Industries, operator of the
world's biggest refining complex.
"Demand is driven by broader economic activity in the
country," said Kumar, adding that his firm was sticking to its
forecast for growth of 4.6 percent in diesel demand in 2013, to
reach 1.48 million bpd.
Demand will not be affected by the decision to raise prices
gradually and diesel demand will grow about 8 percent to 8.5
percent in the current fiscal year, said M. Nene, head of
marketing at state-run Indian Oil Corp.
"Industrial clients in India have no alternative to diesel,
while the hike in the retail price is too small to impact
demand," said Victor Shum, an oil analyst at IHS Purvin & Gertz,
adding that his firm was keeping its forecast for growth of 5
percent in 2013 to 1.5 million bpd.
Regular price hikes will narrow the gap between diesel and
gasoline, whose prices were freed up in 2010, and deter
consumers from using it as an alternative to the fuel oil, sold
at market rates and sometimes costlier than subsidised diesel.
In New Delhi, the capital, a litre of petrol costs 67.26
rupees, about 41 percent more than the equivalent volume of
diesel, which costs 47.65 rupees a litre.
While analysts hope to see diesel prices freed up as well,
India's key government advisory body, the Planning Commission,
pointed to political challenges ahead in executing the decision.
"I would say that there is a very clear signal being given
that we are going to adjust prices, but there are no iron-clad
guarantees in terms of timing," Montek Singh Ahluwalia, deputy
chairman of the panel, told a private news channel.
(Reporting by Nidhi Verma; Additional reporting by Manoj Kumar;
Editing by Clarence Fernandez)