NEW DELHI: If the government accepts oil minister S Jaipal Reddy's proposal, the price of small diesel cars could soon rise by Rs 1.7 lakh while medium-to-large guzzlers could become costlier by Rs 2.55 lakh a piece.
The proposal to impose additional excise duty on diesel cars is bound to trigger protests from automakers, who have seen sales growing at the slowest pace in seven months in May. Domestic car sales declined 24% in May compared to the year-ago period due to high fuel prices and interest rates.
The proposal drew a thumbs down from analysts and private players, who described it as an excuse to avoid fuel pricing reforms. "From the RBI to C Rangarajan, head of the PM's Economic Advisory Council, everyone has recommended deregulation of fuel prices. If you can't do that for political reasons, at least fix subsidy on diesel and then let the market determine the pump price. Taxing vehicles would serve hardly any purpose," said an industry analyst requesting anonymity.
But Reddy has his arguments for seeking taxing diesel vehicles that are outpacing petrol car sales. In a June 7 letter to finance minister Pranab Mukherjee, the oil minister gave three key reasons for his proposal aimed at arresting a ballooning fuel subsidy bill.
Reddy pointed out that the proposed additional excise duties are equivalent to the minimum benefit that a diesel car owner derives from the fuel's price differential with petrol — at current prices — over a 10-year assumed life of a vehicle. Petrol in Delhi costs Rs 71.16 a litre against Rs 40.91 for diesel.
Reddy's arithmetic goes like this: he first calculates the total distance a vehicle is expected to clock in its 10-year life span, assuming an annual run of 18,000km. Then, he works out the fuel costs by taking a median mileage of 18km to a litre for small cars and 12km for medium/large vehicles. For good measure, he shaves off 10% of the total cost to level.
According to Reddy's calculation, the additional excise duty amounts to asking the diesel car buyer to pay upfront the price differential with petrol that he or she would enjoy later. A petrol car owner, in contrast, shells out every time at the pump.
Reddy also pointed out the adverse impact of increased diesel car sales on the government's earnings. Petrol attracts an excise duty of Rs 14.78 per litre against Rs 2.06 a litre for diesel. So each time a buyer opts for a diesel car instead of petrol and visits a petrol pump, the government loses Rs 12.72 in excise duty on litre of diesel. Together with the Rs 12.53 a litre subsidy on diesel, the actual price differential with petrol at Delhi works out to Rs 25.75 a litre.
To drive home the enormity of the situation arising out of this increasing dieselization, Reddy says diesel consumption rose by 7.6% in 2011-12 against 6.2% in 2010-11. In contrast, growth in petrol consumption fell from 10.7% in 2010-11 to 5.6% in 2011-12.
The Kirit Parikh Committee on fuel pricing reforms had recommended an additional excise duty of Rs 80,000 in February 2010 when duty difference on petrol and diesel was Rs 9.75 a litre and under-recovery on petrol was more at Rs 3.97 a litre than Rs 2 on diesel.
Another idiot opens his mouth, without understanding one tiny bit. Makes one wonder about his Ivy League education, and if rumors are to be believed he is among the runners for the post of the Finance Minister.
The main and the tough job of the Govt. is to bring some rationalization to the fuel prices. As EjazR had recently pointed out so skewed are the prices that today, Furnace Oil is costlier than Diesel!!!!
What is this Wizard going to do about the lakhs of diesel cars already on the road, what about the the millions of Diesel generators belching away, millions of agricultural pumps pumping water in the absence of an irrigation system??? What will happen when the car sales plunge. already the IIP is in almost negative territory........and he is a Minister.
What might be the root cause of the problem and the solution when Fuel price is increasing in international market while Diesel is being subsidised for help in economic growth and Folks nowadays are interested in buying Diesel cars for the fact that they could buy the other wise subsidised fuel which was not not for that purpose?
Sir, first of all fuel prices are dropping in International market, the problem is with the bloody INR.
Secondly as I had written in some other thread, the increase in price of diesel is not going to contribute to inflation in a major way. During the 6 years of NDA rule the price of Diesel, petrol doubled almost. Keresone went from 2.16/liter to almost 9/liter, cooking gas from 140 odd to almost 260/cylinder. You just have to compare the inflation figures during that period.
Why do you blame the ordinary man for buying diesel car, when the Govt. has kept the price low. The problem is with the Govt. and not with the decision of the common man to buy diesel car.
Assuming that the purchasing power capacity would not be disturbed by increase of fuel price, but on the other hand not more then 12-14 year back Diesel engine was neither that popular or refined as it is of today, neither it was a preferred option as a private transport vehicle and I assume that so fuel rates had been applied in that manner so that luxury pays its own taxes while economic development is not hampered, it is not like that luxury hampers economic growth but economic growth was subsidised by taxing luxury. Now after 12-14 years back we see a different progress, this ancient rule stands null and void (assuming everybody will go for Diesel vehicle at this lucrative rates, as technological barriers are diminishing). Solution would be either the government stop subsidising diesel or subsidise economic development from a socialistic view.
Not assuming that purchasing power capacity would not be disturbed, from a personal point of view in these 12-14 years Fuel price have atleast tripled while cost for living have doubled, assuming value of currency as constant with the cost for living. Still Fuel price is diminishing the purchasing power capacity.
I dont say that if the whole nation drives on diesel the nation as a whole will suffer a loss but the revenue generation policy for the government through personal transport luxury taxing would be certainly be effected.
For a nation like India,tax on personal luxury have always been applied, or the other way personal transport vehicle like cars are no more a luxury in the present day India.
Its good to increase duty on Diesel cars mostly on SUV's only rich people are enjoying the subsidized diesel ...it need to stop other wise it will help to increase the prices. Its all fault on governance they never thought to make public transport so easy for people and it will help to stop the high prices. thses AS@#%$ only thing of election and party fund.. they take decades to decide for metros ..(which company will pay high party fund)
You have hit the nail on the right head. Stop the subsidies.
For a person driving to work daily say 80 KMs, the efficient Diesel Engine will always be more preferred than a petrol engine, even if the gap were to come down. Gone are the days of Indira Gandhi when driving personal cars was considered to be a luxury. I was quite surprised to read this line.
Things have changed now in India, there are more avenues of revenue generation. We do not talk about the wasteful expenditure of the Govt. we do not talk about the downsizing of the Govt. we do not talk about the tardy implementation of projects, where the cost overruns are 3 to 4 times the original budget costs. If we are able to control these, we may be able to continue the necessary subsidies, though not the fuel subsidy.
Do you have an idea how many compact Diesel cars are running on the road in India today. As a percentage SUVs may account for about 10 to 15% of the passenger cars running on Diesel today. and most of these diesel compact cars sell in the range of 4 to 5.5 lakh. So do only the rich people guzzle subsidized Diesel??
Sir, that is precisely the point. with the absurd levels of subsidies the Govt. is forcing the people to go in for Diesel as the fuel of choice. If the pricing was more rational then only those people who really drive long distances would need to go in for Diesel. We also have to keep in mind that Diesel is the by far more efficient fuel than petrol.
Technology in case of diesel engines has changed drastically and the same article also lists Petrol as possibly carcinogenic, which earlier they had listed for Diesel also.
If both the fuels are causing cancer then where do we go.
Yes let the evil middle/rich class pay the taxes more so the poor lazy bastards who wont work can live without working on dole outs
And all the middle class geniuses advocating this "genius" plan. I really admire your valour, courage and genorocity for helping poor, by wanting to pay more taxes/ and money to the govt which can be looted by the govt in the name of helping poor. But Please do so with your own money. Donate how much ever you want to poor. I wont care. Just dont ask me to subsidise the life of a lazy turd
I read a report that for every four Rupees which the govt spends on the poor, only one rupee actually reaches the poor. This is the problem with govt spending and subsidies. Why does the govt want money for? for providing subsidies and not for providing development. So lets stop the subsidies as such, and let the development take its own course.
But the way Middle class has been indoctrinated into believing every shit the govt feeds them as such is just unbelievable. And here I was thinking, may be when the middle class increases in India, we would have a better governance and voting pattern. But no, the middle class proves to be gullible as the poor
Damn politicians- you got to give it to them. Its not easy to fool so many people like they do. I think they deserve to loot India