The Impacts of India’s Diesel Price Reforms on the Trucking Industry
“The Impacts of India’s Diesel Price Reforms on the Trucking Industry” evaluates the impact of higher diesel prices on India’s road freight transport sector.
The report finds that the trucking industry is vulnerable to higher fuel costs, and supports the earlier evidence that the fuel costs account for around 55 per cent of their total operating costs. However, the main finding of the study is that the industry’s weakness is primarily grounded in structural constraints that have squeezed profit margins, while providing truckers with little leverage to pass on higher costs to clients. The study suggests that addressing these constraints—more so than subsidizing the cost of fuel—is the solution to the long-term profitability of the industry.
The industry suffers from oversupply due to the lack of training stipulations, relaxed registration requirements and easy financing. Eighty per cent of truck operators are small truckers who own less than five trucks. Such small operators cannot reap the benefits of economies of scale and cannot afford to obtain the necessary business information and are thereby dependent on brokers.
Due to oversupply of trucks and fierce competition, freight rates are mostly determined by demand for trucking and thus, increased fuel costs have little influence on them. But fuel costs being around 55 per cent of the total operating costs, truck operators are vulnerable to increased diesel price.
A substantial amount of evidence suggests that a reduction in diesel under-recoveries will have significant fiscal and economic benefits to India’s economy as a whole. However, higher prices will negatively affect industry and diesel-intensive sectors—of which the trucking industry is one of the most obvious.