Last week, petrol pumps in India announced that they would shut shops every Sunday. The move was unprecedented.
Unlike most other establishments which have always enjoyed a day off, petrol pumps – like all essential services – were exempted from the law that required business units to be shut one day a week (though this rule is now being relaxed). Thus, while many mom-and-pop shops are willing to stay open seven days a week, petrol pumps have decided to stay shut over weekends.
But why? Officially, the explanation is that petrol pumps have now decided to support the nation’s call for reducing fuel consumption. That in turn would result in two benefits for the country. It would help reduce harm to the environment by reducing fuel consumption. Reduced fuel consumption would also lower the country’s FOREX outgo on account of oil import. If that was the motive, it is laudable indeed.
The second version (articulated privately) is that the pump owners want their dealer margins increased. They claim that the petrol and diesel business is not as profitable any more as it was in the past. In fact, each time the petrol pumps have decided to go on strike, it has been on account of dealer margins, not to support a national or social cause.
Even the latest threat – when the government announced demonetisation – was because dealers did not want to be charged the merchant discount rate (MDR). Earlier, before demonetisation, the number of customers who used credit/debit cards were a small number. But with cash disappearing, the numbers of credit/debit card users swelled. The MDR, they rightly claimed, was a bigger percentage than the margins they got on petrol and diesel.
So which version does one except? Actually, both the answers don’t make much sense. They leave the analyst perplexed.
Take the moral stand first. Anyone who owns a car knows that if the car owner or taxi driver is aware of the petrol pump being closed, he fills up his tank a day earlier. That is what happens with vegetable markets, with banks and even with family budgets. People plan. In reality, consumption levels do not change because of a panned holiday which is regular and recurring. Clearly, the moral stance does not make sense at all.
Second, take the economic case. Yes, it is true, that dealers get a very small margin on sale of petrol and diesel. But is also true that they get heftier margins on value-added products like engine oil, grease and other lubricants. Moreover, many pump owners earn lots of money from providing other services. Some offer vehicle servicing. Others offer sale of other goodies from the pump station itself.
There is another factor which has ensured that the profits of pump owners have kept on swelling year after year. Just look at how the number vehicles has increased over the years. Unfortunately, even in an age of electronic information, where every vehicle rolled out is captured electronically by tax and revenue authorities, the government’s statistical arm provides data only till 2012 . But even this data shows that the number of vehicles on the road swelled by 190 percent during the 12-year period from 2001 to 2012.
Look at the breakup. Almost every kind of vehicle has seen a surge – from taxis, to cars to two wheelers. The number of petrol pumps has not grown by the same proportion. That has meant more business for petrol pump dealers.
Even at the state level, the growth rates have been impressive – especially in cites like Mumbai and Delhi (and other metropolises) from where the leaders of the pump dealers get their maximum support. Watch the state numbers as well. Almost every state has seen a growth in the number of vehicles in just four years (2009-2012). It must be noted, however, that the figures for Maharashtra that have been given out by the government appear to be erroneous, which in turn skews the numbers and percentages somewhat.
But if Mumbai’s data is taken into account, this city alone saw an increased its vehicular population by 1.7 lakh in 2013-14. That meant an increase of 44,000 vehicles in just one year. The total number of vehicles in the city is now estimated to be over 23.3 lakh, a 55 percent increase in seven years . Today, this city has the highest density of cars compared to other cities in India. Mumbai has 430 cars/km of road, compared to Kolkata’s 308. Pune is third with 248 cars/km. Delhi has a density of 93 cars a km.
In fact, the number of cars has swelled enormously from 2012-2017. Just look at the number of Ola and Uber cabs that have hit the road. And watch a newly emerging affluent class of people employed by a growing service industry take to vehicles. Yet pump owners still believe they get less? It does not make sense.
There is another issue which needs to be considered. While Reliance has been offering a commission of just 0.50 paise a litre for diesel and 0.75 paise for petrol, state-run oil companies have been offering Rs 1.20 and Rs 2.10, respectively . What is equally significant is that while state owned petrol pump have excellent locations, private sector pumps do not. This is because land is that much more expensive in the heart of cities. Thus, public sector petrol pumps enjoy higher volumes which translates into more cash from the same level of investment.
Clearly, it is the petrol pumps linked to the public sector oil marketing companies (OMCs) which have been the biggest beneficiaries and have been screaming the loudest about not making money. One reason for this could be that many of the pump owners got petrol pumps as a favour from well-connected politicians. That is how the distribution of petrol pumps once became a national scandal.
Could it be that the privileges these pump owners once enjoyed – of cash transactions, of favourable deals and of shortchanging customers – are now coming to a close in a digitized and more transparent age? Could it be that changing times have increased a bit of competition for them, and hence they want even higher margins?
The answers are not clear. But one thing is certain. Both claims touted for shutting shop on weekends sound unconvincing. The pious reason touted for closing pumps on weekends does not stand to reason. And the claim that they are not earning much is also quite unbelievable.
If someone can come up with a better answer, that will be wonderful. It will let our readers know what makes petrol pump dealers tick.