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ear), the increase on fuel expenditure will be around Rs. 80 per month. Even if thecrude price increases to $120 compared to the present price of around $70/barrel, the retailoutlet price of petrol, assuming the current tax regime, will increase by Rs. 23/litre (i.e.,Rs.20/litre on the basis of rise in indicative selling price of petrol from $70/bbl to $120/bbl ofcrude price + Rs.3/litre on account of the current price being below the estimated indicativeselling price) and the additional expenditure , assuming no reduction in use, will be around Rs.160/month on a two-wheeler user and less than Rs. 1000/month on a private automobile user (atall-India level).

3) If higher petrol prices lead to less driving, more fuel efficient vehicles and an efficiencyincrease by 20%, the additional cost would be that much less.

4) The cost increases can be borne by motorized vehicle owners andrecommends that petrol prices should be market-determined both at the refinery gate and retaillevels.

(High speed) Diesel

This is the highest selling amongst the fuels accounting for 85 per cent of the automotive fuels.

Sales are through two forms - at the wholesale level to state-owned corporations like the railways and transport companies, and secondly through retail pumps to heavy commercial vehicles and the agricultural sector.

User-wise percentage share in total diesel consumption, 2008-09

The burden of diesel price increase on agriculture depends on where it is used. In 2008-

09, 12 % of total diesel went to agriculture (i.e., to tractors, thrashers, tillers, harvesters, pumpsets etc.). The cost of diesel in agriculture would be accounted for by the Government whilefixing the Minimum Support Price (MSP) for major crops. Therefore, any increase in the cost ofdiesel will be reflected in the price and will not adversely affect farmers. However, those whouse diesel relatively more may not get fully compensated by MSP. Higher diesel price willinduce them to use less diesel which may reduce over-use of ground water prevalent in manyparts of the country. Of course, higher diesel price resulting in higher MSP will increase subsidyfor PDS, but it would be much less than the reduction in under-recovery on diesel.

Trucks and LCVs consume around 40% of diesel. It is reported that with industrial revival and higher economic growth, the truck owners generally raise their rentals in consonancewith growth. Therefore, long distance charge for a round trip between Delhi and Mumbai for a9-tonne truck is more than Rs. 40000 today whereas its diesel consumption works out to aroundRs. 22000. Higher diesel price would encourage fuel use efficiency as well as greater use ofrailways for freight movement. Railways consume around 1/4th as much diesel per net tone kilometer as trucks.

Even assuming that the truckers, power generators, industrial users etc.(other than thepassenger car owners) are able to pass on fully the additional cost of diesel, an increase of Rs. 4per litre would mean an increase of around Rs. 20,000 crore in their cost of diesel which wouldbe around 0.4 % of GDP in 2008-09. This should be compared with the

Car owners, who drive diesel vehicles, including Sports Utility Vehicles (SUVs), should be able to bear the additional cost. There is no economic or social reason to subsidize them. The price of diesel