Govt. plans to decelerate diesel car growth

According to recent media reports, the govt. is said to be in the process of drawing some stringent plans to restrict the usage of diesel in India. Among these, is the plan to levy some heavy duties and taxes either on the purchase of diesel cars or on the fuel, with a view to curb the rising consumption of diesel.

In what would seem a rare case, the consumption of diesel in the country has recently outpaced that of petrol, signifying the dying demand for petrol cars and the fuel. According to data released by the Petroleum Products Planning and Analysis Cell (PPAC), in  the period between April-Sept 2011, the sale of diesel has grown at 6.2%, outpacing the 5.4% growth in consumption posted by petrol. In the April-Nov 2011 period, there has also been a 3.53% decline in the use of passenger cars, which predominantly run on petrol. On the other hand, utility vehicles and vans that majorly consume diesel have seen a 11.05% and 10.3% rise in sales respectively for the same period.

One of the main reasons for hiking taxes and duties on diesel could be that the fuel is far more polluting than the petrol variants, which spells bad news for the country’s carbon footprint. As per media reports, the govt. plans to levy a hefty 20% urban transport tax on the purchase of new personal diesel cars. Moreover, there has also been a proposal by the Oil Ministry seeking a cut in excise duty on petrol by at least Rs 2/litre from the current Rs 14.35/litre. Diesel currently attracts only Rs 2/litre excise duty.

An important observation to be made here is that the govt. has been very careful in its methods to tax diesel fuel usage. With several state elections expected to be held over the next one year, the Centre has concentrated most of its plans to tax personal diesel car users without affecting other diesel consumers like farmers, trucks and the transport business. In this way, the sentiments of the all crucial vote banks would be protected, and the govt. may be successful in realising its plans. The Oil Minister, Jaipal Reddy, has been quoted in media reports emphasising the need to tax personal diesel car users who constitute 15% of the country’s overall diesel consumption.

On the flipside though, the materialising of the govt's flamboyant plans to tax diesel fuel usage will spell bad news for auto manufacturers, who are just about managing to stay afloat in these trying times thanks to the robust demand for the diesel variants as compared to the petrol ones. This will also affect the plans of a number of car manufacturers, who have recently decided to undertake calculated price hikes in order to pass on the rising input costs to consumers.