Limited diesel use by cars doesnt merit excise hike, argues Goenka

Written by Ronojoy Banerjee | Ronojoy Banerjee | New Delhi | Updated: Feb 16 2012, 06:43am hrs
In a last ditch attempt to stall any move by the finance ministry to hike excise duty on diesel vehicles, the automobile industry has raised its pitch by rejecting the Kirith Parikh committee report, which had found that 15% of subsidised diesel goes into passenger vehicles. The report, which had created a stir in the automobile industry, sought to draw the governments attention on the undesired impact of the diesel subsidy.

Countering the argument, Mahindra and Mahindra president (automotive & farm equipment sectors) Pawan Goenka said the report had erroneous data as passenger vehicles consume only 2% of the total diesel. This report had some erroneous data and Parikh himself has recently said that such a tax is not justified. Unfortunately, those who support a diesel vehicle tax are still quoting the data from Dr Parikhs report, Goenka said.

The report A Viable and Sustainable System of Pricing of petroleum prepared by the expert group under Parikh was submitted in February last year. The report has been cited by several independent think tanks, including the ministry of petroleum and natural gas, for increasing excise duty on diesel vehicles. In fact, in January this year petroleum minister Jaipal Reddy had proposed to the finance ministry that excise duty on cars be increased by R80,000. At present, a cars diesel variant is R1-1.5 lakh costlier than its petrol version.

An official in the heavy industry ministry said, Its absurd to call for an additional excise duty on diesel cars. The better option would be to marginally increase the price of diesel. Earlier this week, in a meeting of the inter-ministerial group of officials from the Planning Commission, National Manufacturing Competitiveness Council and heavy industry ministry is learnt to have supported the automobile industry in this regard. It is also said that the senior finance ministry officials had discussed the proposal of hiking the excise duty.

Parikh in his report had argued, Car owners who drive diesel vehicles, including sports utility vehicles (SUVs), should be able to bear the additional cost. There is no economic or social reason to subsidise them. Goenka disputed the charge made in certain quarters that any subsidy was benefiting the affluent in the society. The fact is that even within the very small percentage of the use of diesel fuel for personal vehicle, a small fraction, less than 10% is used for luxury vehicles. Thus the use of diesel fuel for luxury personal vehicles is less than 0.2%, he added.

Owing to the huge disparity in prices of the fuels, the sale of diesel vehicles had overtaken petrol since December 2010. According to data with the Petroleum Planning and Analysis Cell, diesel usage in India jumped 6.2% in the first seven months of 2011-12 to 36.3 million tonne, while petrol use expanded by 5.3% to 8.7 million tonne. At present, the share of diesel vehicles has gone up over 40% while petrol has fallen below 35%.

The automobile industry is against any hike in excise duty on diesel cars, arguing it could derail their investment plans in India. For instance, Hyundai Motor India recently announced that it has put its R400-crore diesel-engine plant on hold due to sluggish market sentiments.