The auto industry in India has been facing quite a few headwinds in the form of higher interest rates, fuel prices and fall in demand. Thus, most companies have seen volume growth slowdown in the past several months. The silver lining in the cloud has been the furious demand for diesel vehicles, which has lent some form of a cushion to the companies. As petrol prices have been freed, the recent hikes had led to an increasing gap between the prices of the fuel and diesel. This saw car buyers make a beeline for diesel cars. Diesel vehicles accounted for 40% of car sales in FY12, twice their share in the previous year.
Now that the diesel price has also been hiked, is the car industry worried? Not really. In fact, the industry has heaved a sigh of relief. This is because the government earlier was contemplating taxing diesel cars, a proposition that the industry was totally against. Thus, as far as auto companies are concerned, this is the lesser of the two evils. Also, even though diesel prices have been hiked, there is still substantial difference between the prices of the two fuels. This means that there will not be much of an adverse impact on the demand side unless the gap narrows considerably sometime in the future.