Carmakers are a worried lot with no clarity on the Government's diesel pricing strategy. For the moment, customers are queuing up for diesel cars like never before but manufacturers are not so sure how long the honeymoon will last.
“We have been hearing for sometime now that the Government will levy a tax on diesel cars. There is also talk of diesel prices likely to be increased. With such a hazy picture, it is becoming difficult for us to plan the petrol/diesel production mix in the coming months,” a top auto sector executive told Business Line .
Levy stress
The Centre has already slapped a levy of Rs 15,000 on vehicles with engine capacities in excess of 1500cc. The industry is not entirely sure if this will now extend to all diesel cars, including the compact category, which accounts for a large chunk of sales.
In the process, a whole lot of rules will need to be rewritten. A small car, which attracts a lower excise duty of 10 per cent, is defined as one under four metres with engine capacities capped at 1200cc for petrol and 1500cc for diesel. At present, the levy of Rs 15,000 is applicable to larger cars (over 1500ccc) over and above the 22 per cent excise duty.
“Some of us are not entirely sure if the Government will extend this additional Rs 15,000 to small cars at a time when the auto sector is feeling the pinch of the slowdown. In that case, the present levy on the 1500cc plus category could increase to over Rs 20,000 and spare the compact car segment,” the executive added.
‘Discrimination'
Such a move will only raise the hackles of those manufacturers who will be affected as a result. Some of them believe that they are being discriminated against and cite the excise classification as a case in point.
“We have always maintained that the two-tier structure of 10 and 22 per cent is unfair. Why not have an uniform 12 per cent across the board?” a top company official asked. According to him, the best way going forward would be to deregulate diesel prices; yet this is not going to happen in a hurry.
It is no secret that the buoyancy in diesel car buying is largely a result of the substantial price differential of Rs 25 per litre vis-à-vis petrol. Unless this is down to a level of Rs 10-15/lt, demand for diesel cars will continue unabated.
Petrol prices already saw a cut of over Rs 2/litre last fortnight . However, diesel continues to be heavily subsidised to the tune of Rs 10/litre simply because it is used in commercial vehicles and other non-auto applications.
The rampant consumption, as a result, is worrying policymakers who believe top-end cars and SUVs have no business using cheap fuel. “They should pay the price as a result which can only come through an additional levy. The revenue generated can make good the losses incurred by the oil companies in selling subsidised diesel,” an industry veteran said.