Reliance recently beat Indian Oil Corporation and after 7 long years got the contract to supply diesel to Indian railways1
Contract was given on basis that Reliance would provide diesel Re 1.50/litre cheaper than IOC(govt company).
Now question is, what's wrong in this ? The fact that a private company is able to provide discount of Rs. 1.50 but Govt Company couldn't, let's see why.
Govt companies import most of the crude oil from outside. Companies have to pay excise duty along with all the taxes for this imported oil. On the other hand, Reliance produce crude oil in India itself and excise duty is not applicable on it.
Excise duty has very important role in this game.
We all know when crude oil was at its lowest, our govt didn't decrease rate of the oil but it did increase excise duty.
Reliance got this contract on 28 January 2015 but all the game plan was laid months before.
Till October 2014, excise duty on diesel was Rs. 1.46/litre, now here we go
-> On 14 November 2014, excise duty was raised by Rs. 1.50[2]( http://wap.business-standard.com/article/economy-policy/government-hikes-excise-duty-on-diesel-and-petrol-114111301000_1.html)
-> On 2 December 2014, excise duty was increased by Rs. 1[3]( http://m.ndtv.com/profit/government-hikes-excise-duty-on-diesel-petrol-707175)
-> On 2nd January 2015, excise duty was once more raised by Rs. 24
-> On January 16, 2015, excise duty was again raised by Rs. 2, second time in the month5
[Why was excise duty increase two times in the same month, in January ? Go back and look at the date when Reliance got contract ;) ]
So this way excise duty was raised by Rs. 6.50
The diesel which you should otherwise have got at discount rate, you have to now pay higher price for it. Diesel is mostly used in transportation, trucks. Increase in rate of diesel will have direct effect on fruits, vegetables, wheat, food, clothe, virtually everything. The profit which should have gone to govt companies is now going to Reliance. If profit had gone to govt, govt could have used the fund to improve public services and for development plans.
From Rs. 1.46/litre it was made Rs. 7.96/litre within just two months.
For this very reason, govt companies had to pay amount greater than Reliance. Due to govt's decision to raise excise duty continuously, govt companies failed to provide oil at discounted price like Reliance's and hence lost the contract.