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When diesel prices surged from Rs 41.28 to Rs 58.97 per litre between June 2012 and August 2014, it hurtled India's food inflation index to near-15% levels. Wholesale price of potatoes - the country's comfort food - shot up from Rs 11 to Rs 19.50 per kilogram during this period.
"Diesel's weightage on WPI is about 5%. Therefore, any rise in diesel price would automatically spike up inflationary pressure," explains Madan Sabnavis, chief economist at CARE Ratings.
"India will always be dependent (on diesel) as long as there's price differential between diesel and other sources of fuel. Even after removal of subsidies, the differential between diesel and petrol is almost as high as Rs 17 in some states," Sabnavis explains.
As per Petroleum Planning and Analysis Cell scrolls, the transport sector accounts for over 73% consumption of diesel at all India level. LCVs, HCVs and buses - by virtue of their large distances covered - account for about 38% of net diesel sold. Cars and utility vehicles contribute nearly 22% of diesel sales (within which private vehicles consume little less than 60%) while the agriculture sector accounts for around 13% of diesel sales in the country.
"When the government subsidised diesel, it was mainly intended to support bulk transportation and agriculture purposes. Over time, other segments also started using diesel as primary fuel," explains Devendra Pant, chief economist, India Ratings. "Diesel cannot be wholly substituted... The government, at the most, can try to make it cleaner," he adds.
The argument as to whether diesel is a "big pollutant" or not caught on after Supreme Court, earlier this week, banned registration of diesel SUVs and high-end vehicles (engine capacity of over 2000 cc) in Delhi until the end of this fiscal. Questions have also been raised with regards to the use of low grade diesel in agriculture equipments (off-highway equipments) and industrial applications (stationary equipments).
IS DIESEL A BIG POLLUTER?
According to Petroleum Ministry data, the consumption of highly polluting high sulphur diesel (HSD) recorded a robust cumulative growth of 7.1% between April and October 2015. This, in a way, lays stress on the fact that the more polluting diesel variant (low grade fuel) is being widely used in the country. Energy experts, however, do not consider HSD as a major pollutant as 'HSD discharge' is often regarded as 'offsite emission'. By offsite emission, experts mean discharge of hazardous particulates or gases in places with sparse population.
"Industries mostly use low grade diesel, which pollute environment more. But then industries are usually in places where there's no concentration of people. Ideally, manufacturing concerns should be encouraged to use lesser polluting fuel," says Rakesh Kumar, director & scientist at National Environmental Engineering Research Institute.
Several passenger vehicle manufacturers have started making engines that use BS-IV auto fuels. According to environment experts, diesel quality matching BS-IV emission standards (matching Euro IV discharge values) is "fairly clean" as sulphur content in the fuel is distilled to 50PPM from previous quality levels of 2000PPM.
"One should not have a biased view on diesel. In fact all fuels (including CNG) have harmful emission. It's therefore not right to call only diesel as the dirty fuel," Kumar clarifies.
According to him, diesel is a more efficient fuel for bigger vehicles than petrol. "In fact a petrol engine in truck would cause more environment degradation than a diesel engine," he adds.
The premise that diesel is safer than petrol comes from the fact that diesel vehicles log lower CO2 emissions than those running on petrol.
"CO2 emissions, which cause global warming, are lower by at least 20% in diesel vehicles (over vehicle that run on petrol)," says Kaushik Madhavan, head of automotive and transportation at Frost & Sullivan.
"Diesel could be made cleaner by higher levels of distillation. In fact several European countries are already using automobile fuels - mainly diesel - matching Euro VI norms," he adds.
The government has set April 2017 as the deadline for auto manufacturers and refiners to match BS-IV standards across the country. While auto manufacturers may meet the deadline, oil refiners have been seeking an extension by two years.
"The refiners may have to invest Rs 60,000 - 70,000 crore additionally, to build distillation capacities that deliver BS-V specifications," estimates Kaushik Madhavan.
On the demand side, diesel vehicles matching BS-V standards would be costlier as auto-manufacturers will have to invest over Rs 40,000 crore to meet BS-V specifications. New-age technology, such as use of 'diesel particulate filters' and 'diesel oxidation catalysts', is known to reduce vehicular emission significantly.
"We'll have to migrate to cleaner diesel if we want to reduce soot particle emissions," says Rishi Aggarwal, a senior environment researcher at the Observer Research Foundation.
"More importantly, we've to cut the demand for diesel from bulk transport sector. Roads account for 65% of the freight traffic in India. A good portion of this should be diverted to railways," he adds.
Banning SUVs in cities alone may not improve air quality. The need of the hour is to phase out old commercial vehicles (15 years and above) from plying on the roads. Measures such as banning the production of passenger vehicles with higher engine capacity may also help. From a pure economics point of view, only diesel - petrol price parity would bring down commercial demand for diesel. But that would be at the cost of rising inflation, experts opine.
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