India plan to raise tax on diesel vehicles ignites row

India Dispatch: The Indian finance ministry's plan to raise a tax on diesel vehicles, as part of the current national budget, has left motorists and industry chiefs spluttering.

There have been previous unsuccessful official calls for higher taxes on diesel cars in a bid to offset of environmental and commercial concerns. Reuters

The Indian finance ministry's plan to raise a tax on diesel vehicles, as part of the current national budget, has left motorists and industry chiefs spluttering.

The Times of India reported on Saturday that Jaipal Reddy, India's oil minister, had on Friday formally proposed a plan to Pranab Mukherjee, the finance minister, to put an additional excise duty of 80,000 rupees (Dh5,900) on diesel vehicles.

Car industry representatives are already worried about the health of India's car industry and say the levy would cause further problems for an already battered market.

"This move is such short-sightedness and it will cause more harm in the long term," says Sugato Sen, the senior director at the Society of Indian Automobile Manufacturers (Siam).

"Our automotive sector is already suffering as it is. Today petrol cars are not selling and this could happen to diesel cars too, which could kill our car industry. We need the growth to continue."

There have been previous unsuccessful official calls for higher taxes on diesel cars in a bid to offset of environmental and commercial concerns.

"Green" pressure groups say the latest plan is long overdue and insist India needs to address the issue of diesel fuel emissions that damage the environment and public health.

"The sale of diesel cars has shot up in recent times and soon over half of all cars will be diesel because of the cost of petrol keeps rising," says Vivek Chattopadhyay from Centre for Science and Environment (CSE), a research and lobby group based in New Delhi.

"Cheap diesel is not only worsening the public health risk, but also encouraging more motorisation and congestion. Diesel is causing serious pollution of our cities and we need to behave in line with the rest of the world."

Petrol is deregulated, giving oil companies the freedom to change retail prices as they see fit. However, changing the price of diesel, which is heavily subsidised, requires government approval. According to the mypetrolprice.com website, petrol in New Delhi cost 65.64 rupees per litre, while the price of a litre of diesel was 40.91 rupees, at the start of last month.

The government says it needs to keep the price of diesel low because it is the mainstay fuel for country's huge agriculture and freight industries.

According to oil ministry estimates, cars account for just 15 per cent of all diesel consumption.

Petrol consumption has been higher than diesel use in the past 15 years - with exception of 1996 and 2004, ministry figures show. But, from April to November last year, diesel consumption growth was 7.4 per cent, compared with 4.3 per cent for petrol.

Environmentalists are alarmed at the disparity. "In Delhi alone 1,200 cars are sold daily and nearly half of them are diesel," says Mr Chattopadhyay.

"Cars have already become the largest beneficiaries of the official fuel tax policy.

"The government policy is redundant and there needs to be a way of capping this trend."

Diesel cars now account for almost 40 per cent of all car sales, compared with less than 20 per cent a few years ago, according to Siam. This is despite the fact that diesel cars cost about 40 per cent more than petrol-engine equivalents.

Motor industry chiefs also fear the planned tax, if implemented, would strangle the development of diesel-engine technology.

"Stigmatising the diesel cause will have a cumulative effect - the technology will not be developed and it will be to the detriment to the whole industry," says Mr Sen.

It remains to be seen whether the diesel vehicle sector in India is about to come off the road.