Finance Ministry against increasing tax on diesel cars

India's Finance Ministry, presently headed by Presidential hopeful Pranab Mukherjee, feels that implementing a hike on excise duties on diesel cars will hurt the auto industry at a time when all industrial sectors are going through a slump. It is, therefore, against the Oil Minister Jaipal Reddy's proposal to raise taxes on diesel-powered models by Rs. 1.7 to 2.55 lacs. According to him, such a move will arrest the sales of cars that consume the subsidised fuel by making them more expensive and putting them out of the reach of buyers.

An official working for the Finance Ministry stated, “What is the point in hurting the auto industry when car sales are already reeling from the high interest rates and expensive fuel?” He continued, “On one hand the government is looking at ways to boost industrial production, then on the other hand we can’t go ahead with such a move.” The national government is in the favour of a rate cut in Reserve Bank of India's (RBI) mid-quarterly policy review to be announced on June 25, 2012, in a bid to promote manufacturing.

According to the Finance Ministry, the increase in taxes on diesel cars will not assist oil retailers in India in reducing their under-recoveries. On this, the official commented, “It’s like money being put in one pocket of the exchequer than the other. It would in no way to help oil companies but would only help increase government revenues marginally.”

Though Reddy has appealed Mukherjee to put his proposal into effect as soon as possible, the Finance Ministry is still holding talks with auto manufacturers and has asked them to submit relevant data about the production of diesel cars from them. Car manufacturers across the country have stated that they would prefer an increase in diesel prices rather than the proposed excise duty on diesel cars. In May 2012, car sales grew at 2.78 per cent in India, the lowest growth rate posted by the industry in the past 7 months, stated industry body Society of Indian Automobile Manufacturers (SIAM).