Indian government mulling higher excise duty that could make diesel cars more expensive!

Maruti Suzuki Ritz Small Car

Diesel cars cost more to make than petrol cars and are hence INR 80,000 to 1 Lakh more expensive than comparable petrol cars. Diesel cars are also inherently more fuel efficient than petrol cars. This factor, along with the steep increase in petrol prices due to deregulation has meant that diesel cars have been the toast of the season in terms of sales. For long the Indian government has been grappling with the differential pricing for diesel along with deregulation of diesel prices.

Diesel, a fuel that is used extensively by the transportation and agriculture sectors in India is a commodity whose price directly affects inflation. Due to this, diesel prices have not been deregulated to match global prices and there exists a subsidy for diesel to artificially keep the diesel price lower. Getting around this politically sensitive issue seems to be proving difficult for the Indian government, which might not go in for diesel price deregulation anytime too soon.

Maruti Suzuki Ritz Small Car

Instead, diesel car buyers will be slapped with a higher excise duty, through which the government hopes to recoup the cost of diesel subsidies, that are being currently used by the “non-intended” beneficiaries, namely private diesel car and taxi owners. This additional excise duty will also mean that the government will not have to bother about the differential pricing of diesel for private cars at fuel pumps, which will be a very difficult task to achieve on the ground.

While this move is still at a proposal stage, expect prices of diesel cars to go up substantially if the Indian government decides to go ahead with the higher excise duty on diesel cars to recover diesel subsidies. Both the Indian carmakers already struggling with a slowdown in sales and the car buyer who already is facing steep interest rates and high prices of fuel would have to bear most of the brunt of this proposed excise duty hike on diesel engined cars.

Via TheTimesOfIndia

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November 1, 2011 | By Jay Prashanth · Tags:

Comments

One Response to “Indian government mulling higher excise duty that could make diesel cars more expensive!”

T.A.P.Krishnan on November 2nd, 2011 2:08 pm

We definitely need a move to collect a higher tax at some point be it by way of excise duty or a special tax to compensate for the loss due to subsidy on diesel which need not be passed on to private users. A differential pricing on diesel would not have worked in any case or could have led to a great misuse, so this is the best way to handle. This was was already suggested several years back and is coming in very late. The additional excise duty can be arrived at by estimating the loss due to fuel subsidy on private use which can be estimated for the useful life of a diesel vehicle.

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