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.



Tailpipe Emissions



So even if diesel vehicles are taxed, a buyer of a small diesel car would still stick to the choice even if it means shelling out a little more initially. This is because the economy has already been worked out in terms of diesel's price differential.

As for buyers of SUVs and premium sedans, paying Rs 3 - 4 lakh more for a Rs 26 lakh-plus vehicle wouldn't pinch - if at all - since one is looking for a particular badge, performance or quality. The pricing policy has hit the state refiners' ability to invest in upgrading old plants or build new units to produce cleaner fuels. They invested over Rs 30,000 crore in new technology to make BS-III and IV fuels. The green tax on vehicles wouldn't improve their ability to invest since the money would go to the government.

Lax enforcement of vehicle fitness rules is a major contributor to vehicular pollution. Trucks, cars, autos and two-wheelers spewing smoke is a common sight. Many are more than 15-20 years old. There's hardly any annual check on their fitness. Pollution under control certificates are not above suspicion.

As far as Delhi-NCR's case is concerned, there appears to be a tendency to overlook the three coal-fired power plants in and around the city and illegal industrial units dotting Delhi's periphery.

The problem gets compounded by the dust kicked up by the construction boom all over the city without the safeguards and dust shields prescribed in the law. Unless all these are tackled together, merely taxing diesel vehicles would fail to clear the air either in Delhi or elsewhere in the country.


Reform Roadmap

1991 | Petrol standards issued: Unleaded petrol, catalytic converter introduced

1992 | Diesel standard introduced

1999 | Supreme Court orders Euro norms implementation

2002 | Mashelkar Panel report turned into National Auto Fuels Policy Bharat Stage IV norms are in force in 20 cities. By 2015 , these emission norms will be extended to 50 more cities



Also Read: SIAM discusses the future of diesel in India

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