Conventional wisdom says a sharp increase in sales of diesel engines indicates a corresponding hike in diesel consumption. But the reality is otherwise.

According to oil industry sources, diesel consumption fell 5.5 per cent in the first four months of the current financial year, while sales of diesel cars surged over 50 per cent.

Even sales of multi-utility and utility vehicles climbed more than 30 per cent year-on-year during the period. Commercial vehicle sales grew 29.5 per cent, while that of diesel generators climbed 10-15 per cent.

The reason is: massive adulteration of the fuel in the open market before it reaches end users. Since industries are particular about the quality of diesel being procured, the adulteration is rampant mostly at the retail end.

Kerosene used for adulteration of diesel is illegally sourced from the public distribution system as well as imports under the open general licence. PDS kerosene comes for almost half the price of diesel at Rs 20 per litre, while imported kerosene costs Rs 14-15 per litre.

Kerosene mixes well with diesel and can be used to derive the density parameters for diesel laid down by the Bureau of Industrial Standards.

"The revenue generated out of this business is as much as Rs 2,000 crore (Rs 20 billion) annually. This is a bigger scam than Bofors," said the head of one of the public sector oil companies.

While this may not be a loss to the oil companies, who adjust their product cycles, there is a substantial loss to the country's exchequer.

India's consumption of diesel is estimated to have shrunk 4 per cent in each of the last three years, though the economy has been growing at 5 per cent annually. According to oil industry estimates, the exchequer may have lost Rs 1,800 crore (Rs 18 billion) a year.

The petroleum ministry, however, says diesel sales have not declined and grew 0.4 per cent from 36,546 tonnes in 2001-02 to 36,684 tonnes in 2002-03. But few are willing to buy these figures.

Officials in the anti-adulteration cell of the petroleum and natural gas ministry say they are not able to collate figures as oil companies are not willing to reveal them, and it is not feasible to maintain checks at 25,000 petrol stations in the country regularly.

"The oil companies do not want to make official statements on adulteration since it will have an effect on their credibility. Also, they have to own up for the folly since their outlets are selling these adulterated products," the official said.

Car makers also admit that the number of engine seizure cases have grown. But they are not willing to discuss the problem openly. Instead, they blame the retail outlets.

The anti-adulteration cell's northern zone conducted 197 inspections since January 2002 and found 37 sample failures in the case of petrol and 11 sample failures in the case of diesel. The Bhure Lal committee also reported a 26 per cent sample failure in the case of diesel.

"The problem is that the BIS arrives at quality parameters after discussions with the oil companies, who deliberately keep the band large. We have suggested that they make the parameters stringent by compressing the band and avoid overlapping so that blending becomes a problem. But the companies complain that there are technical hitches," an official of the cell said.

Another suggestion is that oil companies use bio-markers to protect their products from adulteration. But a top executive of an oil company said since the companies had sharing arrangements, it was difficult to implement such measures.

Such measures have failed in the past as well. Oil companies blue dye kerosene used for the public distribution system so that adulteration can be detected through a furfural test.

But the people involved in the business have started using chemicals to remove this blue-dye and derive white kerosene. Oil companies also imported locks to seal their tankers in transit from depots to retail outlets. But even these failed.