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India’s growing frustration with exploding fuel prices

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The cascading value of the Indian rupee against the U.S. dollar and the free fall of fuel prices in the country has put the Indian transportation sector in a spot. Over the last few months, the ruling BJP government has strangely been silent about the disproportionate increase in fuel prices which is inflating the costs of hauling goods across the country. To make it clear, the ballpark price of one gallon of diesel in India stands at $4 as compared to an average of $2.9 in the U.S. – purchasing power of parity notwithstanding, this expounds why the situation is dire, and why people in India are feeling the heat of price inflation.  

Jet fuel has not been spared either, with Indian commercial airlines staring down at record losses this year. India’s jet fuel prices are among the highest in the world, and is now nearing its all-time high, last seen in late 2013 during the global oil price surge. IndiGo, India’s largest carrier by market share witnessed profits slumping by 97% last quarter, primarily because of its inability to tussle with fuel costs.

Indian aviation industry suffers from a lack of competition in the fuel supplier space. The Indian airline companies allot 34% of its budget for fuel, which is immensely higher than the global average that stands at 24.2%. “To start, there is no real competition for fuel suppliers at airports, so there is little commercial incentive to keep fuel prices competitive,” said Alexandre de Juniac, director general and chief executive of International Air Transport Association (IATA). “Adding insult to injury, GST is then applied to the throughput fees, the infrastructure fee, and the into-plane service fee,” he said.

Major opposition parties in India like the Congress had initiated a country-wide strike last month to oppose fuel prices spiraling out of control. Since India imports nearly 80% of all its fuel, the country is heavily dependant on global fuel prices staying under control for curbing local inflation. Regardless, the incumbent government is guilty of raising taxes and duties on oil which now account for over 100% of the base price of crude oil.

Though accusations and strikes have been met with stony silence from the government, the transport ministry has been looking to ease pressure in many different ways. One of the moves include it increasing the official maximum load-carrying capacity of heavy vehicles like trucks by nearly 25%. Nitin Gadkari, the road transport and highways minister later reiterated saying the ministry would increase permissible load capacity for trucks and tractors already on the road, and that the statute was not just for new vehicles.

However, this has been met with a lot of confusion and angst from the OEMs, as the order would mean the demand would reduce for existing models and would end up increasing production costs. The Society of Indian Automobile Manufacturers (SIAM) has opined that though the regulation is helping the country reduce freight haulage costs, increasing load capacity for existing models could end up lessening safety on the highways.

This is because the details to the regulation have been hazy at best. Till date, there has been no clarity on the need for modifying trucks to carry increased capacity – the absence of which could lead to accidents. That being said, overcapacity has historically been an issue, as trucks are frequently found to carry loads over the allowable capacity, although it being illegal all this while. Bringing in this regulation would only help legalize the existing practice of hauling over its designed capacity, but would do no good for improving safety on the roads.

Nonetheless, the increase in truck hauling capacity is a welcome move. The capacity limitations that were in place before had not been revised for decades, even with road quality having seen tremendous improvement over the years. The move would hopefully reduce the number of trucks on the road, and thus help bring down freight haulage costs. However, to improve safety, the existing trucks need to be reinforced for higher tonnage through robust axles, chassis, and stronger tires, while new models need to be introduced to suit market needs.

In the railroad industry, the Indian Railways has turned toward bimodal vehicles, launching a novel train dubbed the RoadRailer – a vehicle that can run on rails as a wagon and double up on the road as a semi-trailer truck. Every wagon comes with eight truck wheels, that are coupled with other units through adaptor bogies. The adaptor bogies come with four rail wheels, and the wagons can haul up to 30 tonnes each.

The first RoadRailer ran between Tamil Nadu to Haryana, over a distance of 1400 miles, carrying goods in 18 wagons. This initiative is believed to replace over 50 trucks in the process, and thus bringing down the costs of freight haulage across the country. It is also in line with the railways’ intention to grow its freight revenue by 6-8% annually.