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Will tax on diesel cars clear the air?

Market pricing of diesel, not taxing private vehicles running on the fuel, combined with rigorous check on vehicular health is the only practical way to control emission and arrest rising dieselisation of the economy


Chevrolet Sail UVA

Slapping a green tax on diesel vehicles, new and running, may tackle the symptom temporarily without curing the root cause - diesel's big price difference with petrol - that has put diesel car sales ahead of petrol vehicles.

In May 2011, as TOI first reported, Delhi industrialist Vivek Bharat Ram wrote to plan panel deputy chairman Montek Singh Ahluwalia pointing out the skew. "One out of 10 vehicles was running on diesel some years ago. Today, nearly half of all vehicles sold run on diesel."

The effect was telling. As TOI reported on October 12, 2011, growth in demand for petrol cars fell below that for diesel for the first time in 15 years. The difference stood at Rs 26 a litre in Delhi then. Today, after the government raised diesel price by Rs 5 a litre in September, that gap may have narrowed to Rs 20. But it's a lot of money to save for a buyer of a small diesel car.

The problem, thus, lies in the government's pricing policy. Since June 2010, petrol is sold at market rate, more or less in tune with the rise and fall of rates in international bulk markets and the rupee's value against the dollar. But the government continues to control diesel price and pays state-run fuel retailers in cash to bridge the gap between the fuel's artificially-low pump price and market rate. Today this difference stands at Rs 10.19 a litre.

The idea of taxing diesel vehicles is not new. It was mooted during then oil minister Murli Deora's tenure. His successor, S Jaipal Reddy, in July this year wrote to then finance minister Pranab Mukherjee to give it a shape of a formal proposal.


But the idea didn't find favour with heavy industries minister Praful Patel and automakers alike. Even the finance ministry was reportedly against the idea. Their argument was broadly common: It'd hit the auto industry, considered a major driver of economic growth. Such fear is unfounded, at least in the long term, as has been seen in the past. Car sales have always bounced back after every hike in vehicle or fuel prices. Contrary to arguments against raising fuel prices, no increase in pump prices has dampened petrol or diesel consumption.

Posted on November 29, 2012 19:03 IST Views: 4267
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