The growth in demand, being attributed to a pick-up in industrial production, is rare at this time of the year. In August and September last year, diesel consumption had barely increased by 1.3%.

The overall growth in diesel consumption was 4.3 per cent in 1998-99 and 3.4 per cent in 1997-98, but those were times of recession. In the preceding years, the transportation and power plant fuel showed a healthy 6 per cent to 7 per cent growth in consumption.

The use of diesel traditionally increases at harvesting time and decreases after the monsoons. The petro-fuel powers more than five million electrically-operated pumpsets and tubewells around the country, apart from energising liquid-fuel based power plants and close to 40 million vehicles on Indian roads.

The demand pattern for the fuel varies between 9 percent (around March and April) and 4 per cent (in August and September) in any given year. The country guzzles up nearly 40 million tonne of diesel, making it the most widely used petroleum product.

Till last year close to 14 million tonne of diesel had to be imported, but imports have dwindled to 4.1 million tonne this year with more than 33 million tonne of new refining capacity going on stream. Imports will stop entirely at the end of this month. The huge jump in diesel consumption is in tune with the galloping 9.6 per cent increase in the overall consumption of petroleum products this year. Oil consumption grew by a little more than 6 per cent in 1998-99.

The roaring 9 per cent jump in the use of petro-fuel somewhat explains the urgency of the price hike. Oil Coordination Committee (OCC) executive director MS Ramachandran let slip at the late night Press Meet on Tuesday that without the price increase, the committee would have had trouble importing crude.

Canalising agency Indian Oil Corporation (atthe directive of OCC) is expected to import 60 million tonne of crude oil this year, a 57 per cent leap from 38 million tonne last year. The bill for importing crude and petroleum products is expected double, pushed by increasing oil prices and a gargantuan demand from new refineries at home.

The nearly 40 per cent unintended subsidy in the retail price of diesel was expected to bloat up to Rs 6,600 crore by the end of the year. The total deficit in the oil pool account (which cross-subsidises controlled petroleum products) would have swelled to Rs 10,000 crore.

At the prevailing international price $ 170.60 a tonne, the ``import-parity'' price being paid to the refineries was nearly 40 per cent higher than the ex-storage point price of Rs 6882.15 a Kilo litre. The drain on the pool account was close to Rs 1000 crore a month.

Saddled with that huge shortfall in earnings from petroleum products, the OCC would still have to budget for $ 12 billion (Rs 50,400 crore) of crude oil and petroleum productimports. The 40 per cent hike in the ex-storage point price of high speed diesel to Rs 9634.60 a Kilo litre now rids the oil pool account of the hidden subsidy.

The retail price also minimises the accrual to the pool account. Nearly 50 paise out of every litre sales of diesel have paid for the Rs 12,984 crore of oil bonds since March last year. Diesel was a boon to the account till April this year, when the retail price of the fuel went up by 3.5 per cent. After that the monthly adjustment of the domestic retail price of diesel with global prices stopped. Refineries continued to get the international price of the fuel, which tapered up by 60 per cent between April and September.

Industry watchers say the hike could have been more gradual had diesel prices gone up every month after June, when global prices first began to look skywards. The predilection of a government facing the polls, to stall that decision, resulted in the whopping Rs 3.56 a litre to Rs 4.31 a litre increase in the retail prices ofdiesel around the country. Meanwhile, CII President and Bajaj Auto chairman Rahul Bajaj said the hike in prices would help control fiscal deficit in the long term and consequently restrict the pressure on overall prices.