The automobile industry may not like it but the proposal to
hike excise duty on diesel vehicles is good for the
State exchequer and the environment
THE PROPOSED excise duty hike on diesel vehicles has got mired in an unseemly statistics game. But this did not stop Petroleum Minister S Jaipal Reddy from proposing a hike of 80,000 on diesel vehicles on 27 January to the finance ministry. However, Planning Commission member Kirit Parikh, who first recommended it two years ago, has backed out of his proposal.
The diesel controversy in India is quite old and has two dimensions: economic and public health. India is among a few developing countries that keep diesel prices low to help farmers run irrigation pumpsets and tractors, and to keep transportation costs down for truckers. It is a political decision. The government has long known that its diesel subsidy is abused by rich car owners, who can run large diesel vehicles for the cost of running a smaller petrol car.
The Central government loses revenue every time a possible petrol vehicle owner switches to diesel — excise duty on petrol is seven times that of diesel. Diesel is denser than petrol, so it offers greater fuel efficiency. The automobile industry has cashed in on this pricing skew; some automakers like Tata Motors and Mahindra specialise in diesel.
Carmakers summon several arguments to defend their profiteering off India’s diesel skew. Like how diesel lowers carbon emissions by giving better mileage. So, if one owns a diesel SUV, it is possible to feel good about oneself for doing that little bit to save the planet. But one would also be doing a little bit to spread cancer, especially when driving in heavily populated areas. All vehicular exhaust has tiny particles, but only diesel exhaust has carcinogenic particles. And it gets worse. The more refined the diesel engine, the smaller the particles in the exhaust, the deeper they penetrate the respiratory system, delivering carcinogens directly where they can do maximum damage. This is why diesel was banished from Delhi’s public transport fleet following the Supreme Court’s order and a very public anti-diesel campaign by the NGO Centre for Science and Environment (CSE).
Successive governments have chosen to ignore this carcinogenic potential of diesel exhaust. And they have chosen to forgo the revenue that may have come from a more sensible pricing policy. Two years ago, the government made its first attempt to remedy this. A Planning Commission group under Parikh suggested an excise duty of Rs 81,000 on the purchase of diesel vehicles to level the diesel-petrol gap.
The automobile industry doesn’t like this as diesel has accounted for a major portion of its profits in recent years. It protests the interference of the petroleum ministry in taxing of cars; automobiles come under the ministry of heavy industries, which is dead against the excise duty hike on diesel vehicles.
Vishnu Mathur, director general of the lobby group Society of Indian Automobile Manufacturers (SIAM), says the excise duty hike singles out cars, leaving alone other luxury uses of diesel such as running gensets for air-conditioning. Recently, SIAM released a study that said cars use only 5 percent of the total diesel consumed in India. Hence, diesel cars should be spared the duty hike and the government should work on equalising the price of diesel and petrol (which is impossible for the government).
Now CSE has hit back at SIAM, saying it has played around with numbers to misinform. It has cited data from the government’s own Petroleum Planning and Analysis Cell (PPAC), which says diesel passenger cars use 15 percent of the total diesel used in India. SIAM says PPAC was using data from 200 fuel outlets only, and that SIAM has taken into account a more comprehensive set of data similar to that used by the Planning Commission. Parikh, meanwhile, has gone on record to change his stand on the excise duty hike, saying the issue needs more deliberation.
The government’s first serious attempt to address the diesel skew looks set to dangle for a while.
(The views expressed in this column are the writer’s own)
Sopan Joshi is Independent journalist.