Friday, 5 August 2011

Carmakers fume over government plan for dual pricing of diesel

The government on Thursday indicated that dual pricing of diesel may be introduced to remove the subsidy enjoyed by car owners, provoking a strong reaction from carmakers. Finance minister Pranab Mukherjee said in the Lok Sabha that passenger cars were consuming about 15% of the diesel supplied in the country and that "we can try to work out what mechanism, so that this section is not subsidised". 

Car manufacturers said any change in policy or an additional tax on the fuel would hit an already slow auto market. Domestic car sales dipped 10% year-on-year in July, the worst performance since the 7% decline in January 2009. The government gives a subsidy of Rs 6.08 a litre on diesel, the fuel that powers the construction and agriculture industries. According to the ministry's estimates, the fuel subsidy bill for the current financial year will be . 122,000 crore. "These are all proposals which are being considered by the finance ministry. 

The finance minister rightly expressed concern about mis utilisation of subsidised diesel for many things like power generators," oil minister Jaipal Reddy said. The finance minister's comment comes at a time when most car manufacturers are working hard to increase their share of the domestic diesel car market. Diesel cars account for about 35% of all passenger vehicles sold in India. Sales have risen sharply over the last few years primarily because diesel is 40% cheaper than petrol and about 30% more efficient. 

General Motors India president Karl Slym said: "We are for market driven price of diesel. Already the sales of car and passenger vehicles are sluggish in the domestic market and any change in policy will further impact it." The company recently launched the diesel version of its compact car 'Beat'. 

India's top carmaker Maruti Suzuki said it would cut exports of diesel engines to Hungary to concentrate on the Indian market. The company, which is facing competition from new entrants such as Ford Figo, Toyota Liva and Volkswagen Polo, said it would increase production of diesel cars to feed a growing demand. "We are reducing on export of diesel engines significantly to cater to the domestic demand. Currently, we export 35,000 to 45,000 units every year to Hungary. We will reduce it to almost negligible levels in the next six months," Maruti Suzuki India managing executive officer (marketing and sales) Mayank Pareek said. 

However, the Society of Indian Automobile Manufacturers has welcome the move saying any removal of the subsidy on diesel used by passenger cars is a step in the right direction. Society of Indian Automobile Manufacturers president Pawan Goenka said they have always supported market-linked pricing of automotive fuels. "Petrol pricing is already market based and this move by the government may be the first step in moving towards full market pricing of diesel," he said. "However, the proposed scheme should include only personal use diesel passenger cars. 

The commercial applications of diesel passenger vehicles should be exempted from dual pricing of diesel fuel as it would impact mobility for the masses, especially in the rural areas," Goenka added. Diesel is a globally popular fuel. In Europe, over 50% of the cars sold are run on the fuel. 

The trend is catching up in India, fuelling the government's fuel bill. "The FM's concern is genuine. Diesel constitutes 40% of total fuel subsidy burden," a senior oil ministry official said, adding that implementation of dual pricing was not practical.


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