The railway minister on Wednesday went ahead with an across-the-board hike in railway fares in all classes from midnight of January 21. The possibility of a hike in freight rates also cannot be ruled out after the decision. There was also a suggestion that bulk consumers or bulk industrial buyers may have to pay market price for obtaining diesel. Mukesh Kumar Anand, Professor, NIPFP told CNBC-TV18 that bulk buyers of diesel are very few in the industry and it may not affect all segments in general. At the most, it may result in a cost hike of around 0.25 percent.
However, he believes the maximum impact of a diesel price increase may be felt by the glass industry and its cost can move up by about 11 percent. Overall, he does not see a major impact on other industries and added, "For most other industries the total fuel used, especially diesel and petroleum products used in proportion of the inputs are quite small. It would not have a very large impact on their cost."
Here is the edited transcript of the interview on CNBC-TV18.
Q: For sectors like cement and power what do you think the impact or the material impact could be of such a move?
A: The bulk buyers in the industry are very few and mostly they use diesel for captive power generation. My estimate for the industry’s average cost increase in diesel price would be about 0.25 percent or so because of about a 25 percent hike. It can vary across industries with a maximum for the glass industry, at about 11 percent or so.
But, for most other industries the total fuel used, especially diesel and petroleum products used in proportion of the inputs are quite small. It would not have a very large impact on their cost.
Q: Would it trigger off a fairly significant increase in freight rates you think?
A: That is possible. In case of freight rates, due to our high dependency on road transport it may result in a hike. More than 70 percent of freight is transported by road and diesel costs are almost 40 percent or more of the cost of inputs of freight transport.
Q: Do you think sectors like cement would need to see significant pass through in price to cover up for this if it were to happen?
A: My estimate from the data I use from Annual Survey of Industries (ASI) does not show a very large need of an increase in prices to absorb such cost.
Q: Do you think it would trigger off inflation in any major way, this particular move with collateral kind of impact as well or nothing unusually high?
A: If we looks at the total multiplier effects of the use of petroleum products, especially that of diesel in the macro economy, I would assume that the direct impact of an increase in price of diesel by about 20 to 25 percent would be to raise the inflation level by about 1 to 1.2 percent. But, the total indirect effects, if one includes the indirect effect, might go up to above 2 percent or so.