State road transport corporations will have to raise fares by over 18 per cent to make up for the recent diesel price deregulation, according to India Ratings & Research said on Tuesday.
The government had in January decided to sell diesel to bulk consumers like state transport buses at market price which is higher than the price of the fuel at petrol pumps.
"State Road Transport Corporations (SRTCs) are the second-largest consumers of bulk diesel in the country (2.192 million tons per annum or 14 per cent of total diesel consumed)," it said in a note.
Together with the decision on diesel for bulk users, the government had also decided to raise the fuel prices by 40-50 paisa per litre every month for retail consumers.
Diesel rates at petrol pumps have been hiked three times by about 50 paisa a litre since then and diesel in Delhi now costs Rs 48.67 per litre. The price of the fuel for bulk users like defence, railways and SRTCs is Rs 51.81 a litre.
"At the aggregate level, without factoring in diesel price hikes, a fare hike of 10.8 per cent is required for SRTCs to breakeven... a fare hike of 18.3 per cent is required for SRTCs to breakeven after a diesel price hike," it said.
Fuel contributes 31.2 per cent to the total cost of SRTCs. Price deregulation would lead to a 6.9 per cent increase in input cost of SRTCs.
The highest fare hike of 126 per cent is required by West Bengal to break even without a fuel price hike, 9.8 per cent to compensate for the fuel hike (maintaining the old profit after tax) and 136.2 per cent to break even with price hike.
"At the aggregate level, a one rupee per passenger kilometre fare increase will reduce SRTCs deficit by around 43 per cent. To completely wipe out the deficit, fare needs to be increased by Rs 2.32 per passenger kilometre," it said.
India Ratings said the price deregulation would lead to a 69.8 per cent increase in the aggregate losses of SRTCs.
"Although the aggregate losses of SRTCs in FY11 were 0.08 per cent of GDP, losses were significant in Delhi (0.86 per cent of state GDP), Tamil Nadu (0.24 per cent), Mizoram (0.21 per cent) and Chandigarh (0.18% per cent)," it said.
Subsidy for the nation's most consumed fuel, diesel is a major factor for fiscal deterioration.
In FY11, only five SRTCs - Bangalore Metropolitan, Karnataka, Maharashtra, Odisha and PUNBUS, Chandigarh - were in profit. After diesel price deregulation, only Odisha SRTC will have a marginal profit.
"An average fare hike of Rs 2.32 per passenger km is required for SRTCs to breakeven. The fare hike will be significant for SRTCs of Mizoram (Rs 108.2), Kolkata (Rs 53.3), North Bengal (Rs 34.6), Nagaland (Rs 27.2), Ahmedabad (Rs 26.6) and Punjab (Rs 22.4)," it added.