Petroleum Ministry pushes for a duty increase on diesel engined cars at the 2012 Union Budget!

The background:

An Indian truck's diesel tank shown as an illustration

A while ago, the Kirit Parikh committee recommended a big bump up in excise duty to the tune of INR 80,000 on diesel engined cars. Another voice in the form of the then-environment minister Jairam Ramesh, questioned the diesel subsidy being used up by luxury car and SUV owners. The committee as well as Ramesh’s contentions are that the subsidy on diesel is doled out by the Indian government to benefit the transport sector(Read to keep prices of essential commodities low and inflation in check) and the agriculture sector where diesel generators are vastly used for power generation.

The issue:

Currently, there are a large number of diesel engined cars in India and over the past one year, there has been a paradigm shift in buyer preference from petrol cars to diesel cars due to the stratospheric hike in petrol prices. There has been an 80-20 distribution in the ratio of diesel-petrol cars, while this figure was just the opposite a decade ago. New diesel engine technology, which have made the diesel cars, once considered smoke spewing and polluting, more powerful and economical .

Chevrolet Beat Diesel Small Car

This has naturally translated into higher sales at the hustings, beating the less efficient petrol cars hollow. Also, add to this the fact that most luxury cars and big SUVs in India are diesel engined, thereby benefiting from the subsidy on diesel. An unclear policy regarding diesel by the Indian government is pushing automakers into the caution zone, with many automakers even putting their diesel engine expansion plants on hold. All in all, confusion and uncertainty prevails.

The government’s proposed solution:

The Indian government through the 2012 union budget, will explore the possibility of slapping higher excise duty on diesel engined cars as a means to recover the subsidy that diesel engined cars use up over their lifetime, a subsidy that is rightly meant for the transportation and agriculture sector. So, this would result in a sharp spike in diesel engined cars prices, which are already quite high when compared to petrol engined cars due to the higher costs associated with making diesel engines. Needless to say, a big price bump up will put brakes on the Indian car sales, which is already reeling under a slowdown.

Our opinion:

When this matter first surfaced in the run up to the union budget of 2011, Team ICB criticized the government’s move, as this move of higher taxation of diesel engined cars, being one of solving he government’s administrative problem than actually correcting the tilt on subsidy. A better solution, in our opinion would be the variable taxing of diesel engined cars, albeit with the size of the cars being considered. Luxury cars have no business of using up subsidies. So, the government should tax those cars higher than the small cars, which the common folks use as a basic, everyday means of getting around.

2012 Toyota Corolla Altis Diesel

Also, the state taxes on diesel, which make for a large component of the final price of petrol can be reduced if the government feels that there is a big gap between petrol and diesel resulting in the dieselization of the car industry. Quite frankly, we don’t see the point on why the car industry should not tilt towards diesel engines, engines which are much more efficient than equivalent petrol engines and emit much lesser CO2 than petrol engines.

True, diesels emit higher sulphur di-oxide and nitrogen oxides, but that is for the emission checkers to take care of as a well tuned diesel engine is not the real culprit for that matter. All in all, diesel engines are the way to go if we want to go that extra mile with that extra bit of fuel saved and it is quite ridiculous that stuff like “India is getting dieselized” is being bandied about. If anything, there seems to be a automaker lobby, heavily invested in petrol engines, batting for this cause.

Via TheIndianExpress

Share and Enjoy:

January 19, 2012 | By Jay Prashanth · Tags: 2012 union budget, Diesel Car Excise Duty Hike, Diesel Car Price Hike, diesel price deregulation

Comments

One Response to “Petroleum Ministry pushes for a duty increase on diesel engined cars at the 2012 Union Budget!”

Sridhar on January 22nd, 2012 9:45 pm

Even if the govt. decides to hike the excise duty on diesel engined cars, it should do it so for the cars that costs excessive of ten lacs.

Leave a Reply