Besides the fact that diesel vehicles are thrifty, one of the major reasons for may to prefer them is that the fuel has been more affordable than petrol. However, now the price gap between petrol and diesel is shrinking and this could accelerate the shift towards petrol/CNG in the Indian passenger vehicle (PV) market in the coming years. According to an analysis conducted by ICRA, diesel PV share in India is expected to decline to 15-18 percent in FY 2022 from the current 29 percent in FY 2020. Of this percentage, the share of diesel cars will slip to around 5-7 percent (from 11 percent) whereas the UV segment’s share will gradually reduce to sub 40 percent (from 65 percent) over the coming two-three years.
ICRA’s analysis further explains that it no longer makes sense for an average car buyer to opt for a diesel car and that the entry-level segment (sub-Rs 5 lakh) has almost entirely shifted to petrol/CNG. The taxi segment accounts for a sizable share of overall diesel vehicles in India but the government’s initiative to push clean vehicles (CNG/LPG/Hybrid) is yet to materialise completely. The agency states that the CNG vehicles (that deliver a lower running cost compared to diesels) share will benefit at the expense of diesel share.
After the implementation of BS6 emission standards, upfront price of diesel vehicles has increased by Rs 50,000 to Rs 70,000. This, along with tapering fuel price gap, is accelerating the shift away from diesel powertrains Furthermore, regulations like the ban on older diesel vehicles and push for CNG in commercial segments would also lead to dampening demand for diesel vehicles in the medium to long term.
The share of diesel vehicles in FY2020 in 29 percent which slipped from 58 percent in FY2013, and it will further reduce to about 15-18 percent in the next three years. CNG vehicles will mainly benefit from the shift, with share their currently below 5% expected to outperform other fuel segments in the medium term.
Adjusting to the changes in the market, some OEMs have pulled out their diesel powertrain offerings, bringing the focus to hybrids and CNG.
Diesel engines make a comparatively smaller share in the passenger car segment at 11 percent, however, the UV segment makes 65 percent currently in FY2020. ICRA expects the share of diesel vehicles in new UV sales will decline below 40 percent in the next 2-3 years from 65 percent in FY2020 (and 97 percent in FY2013) while the share of diesel in the car & van segment will settle at around 5-7 percent in the medium term.
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