Small car: big trouble for petro firms

India is set to see a small car boom. The Tata's new small car is not only set to change the dynamics of the automobile business — it will send demand for petrol surging.

The situation is likely to worsen as other carmakers scramble to enter the market at similar price levels. There are 60 new big and small cars set for launch this year.

It is likely to bloat India's fuel bill and push up petrol prices. Given the long life of cars in India, most new cars will not replace old cars but will add to the numbers. Let's see how it will impact our energy needs.

The Tata car will start off with a production facility for 2.5 lakh cars a year to start with, scaling up to a million per year by 2010. If we assume that the Tata car sells 2.5 lakh a year then in two years there will be five lakh new Tata cars on the roads. If on an average the cars use one litre of petrol a day (the car's engine gives 25 kilometres to a litre) then the total petrol need in a year would be 18.25 crore litres. (India consumes over 1100 crore litres of petrol a year).

And if Tatas can add a million cars a year, that will add fresh demand for 37 crore litres of petrol every year. Its not just Tata, every carmaker is bringing in new small and big cars for India. In fact the automobile sector is growing at 22 per cent every year.

This is bad news for India, which imports 70 per cent of its crude oil. It's even worse news for Indian petroleum product marketing companies. They lose over ₹9 on every litre of petrol sold. With a surge in demand their losses will go up. The Tata car alone, may increase their losses by ₹164 crore.

Says Rohit Nagrajan, energy analyst with Angel Broking: 'Either the government will have to provide them more bonds or increase the price of petrol.' There is no problem with supply as India exports fuel after importing crude, Nagrajan said.

Tata Motors declined to comment. Energy consultant Ashok Sreenivas says: 'The companies are just making use of the situation, where citizens are increasingly forced to rely on their own motorized transport. Our urban transport policies as practiced in most cities have built-in biases that favour the car driver.'