The burden due to the recent hike in diesel price appears to have been shifted on to the general public in a disproportionate way. A newspaper report predicts a flat increase of Rs 5 in the prices of all vegetables. In addition, on Gandhi Jayanti, call taxi operators announced a flat increase of Rs 2 per km.

We have worked out a model which indicates that the shift of the diesel price hike burden on the public is excessive. This may be helpful in creating awareness among the general public against intermediaries who are capitalising on the price hike and making a huge extra income.

The inelastic nature of price changes on vegetables comes in handy for the retail vegetable vendors, freight operators and the call taxi operators, while meek customers simply seem to accept the increase.

CHENNAI SURVEY

The model explains that by transporting 250 kg of vegetables from the wholesale (Koyambedu) market in Chennai and selling in the retail shops, each retail vegetable vendor makes an additional net income of Rs 1,205. The prime retail business areas, such as Purasawalkam, Egmore, Nungambakkam, Kodambakkam, fall within 10-km distance from the wholesale market. We have taken a distance of 20 km that covers the maximum distance of retail business operation from the wholesale market. The fuel efficiency of the vehicles used for transporting vegetables used is around 14-15 km per litre of diesel. Suppose, we assume a fuel efficiency of 10 km per litre of diesel; in that case, the fuel consumption will be about 2 litres of diesel to cover a distance of 20 km.

However, the additional expenditure incurred on the fuel due to the price hike is about Rs 10.44 only. Our interactions with some of these freight operators point to a 8-15 per cent hike in freight rates across various routes.

For our computation we have taken the highest price hike of 15 per cent freight rates. The approved load capacity of these vehicles is around 1 to 1.5 tonnes. For our calculations, we assume load capacity to be 1 tonne (1,000 kg.) per trip. The normal practice is that freight operators, on a spot basis, pick up 4-5 retail vegetable vendors in their route and collect a fixed rate of Rs 300 from each vendor. A 15 per cent hike raises the rate to Rs 345.

Our computation shows that a small increase in the diesel price enabled the transport operators to earn an additional net income of Rs 170 per trip. The retail vegetable vendors make Rs 1,205 on a load (of 250 kg) due to hike in the diesel price. The general public meekly accepts this without questioning and shoulders the additional burden.

Similarly, for the call taxi operators, the additional expenditure incurred due to price hike is only Rs 10.44, whereas by increasing their tariff rate by Rs 2 per km they are now making an extra Rs 30.

POLITICAL ISSUE

For the opposition, inflation would be the main election theme for the 2014 Parliamentary election campaign. The alliance partners, when in power at the Centre, did not make much of a noise when the UPA government hiked the diesel price ten times in the last 36 months. Later, sensing the public mood, they chose to break away from the coalition.

Though consumer protection forums do exist, they are not strong enough to prevent such disproportionate shifting of the price burden on the public.

So the need of the hour is a strong, unified influential customer protection forum with a regulatory authority that resists such transfer of burden.

(The authors are with Institute of Financial Management and Research, Chennai.)

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