Argument heats up on increasing Diesel price

Thursday 01 March 2012, 16:36 PM by

Arguing in favour of increasing diesel price, Prime Minister's Economic Advisory Council chairman C Rangarajan said that for lowering the fiscal deficit and huge subsidy burden, prices of diesel need to be revised. Rangarajan, while releasing 2011-12 economic review said that earlier a decision was taken for deregulation of diesel prices but it never turned practical.

"It will be necessary during 2012-13 to make some adjustments on diesel prices in a phased manner. We have not done this for quite some time and international crude prices have gone up. It is not possible for us to subsidise this sector beyond a level," Rangarajan said. Due to the less transparency in the diesel pricing strategy of the government, carmakers are getting worried. The customers at present are crowding the showrooms for diesel cars but manufacturers are not sure that this positive situation will continue in the future.

“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.

Mr. Shashank Srivastava, CGM (Marketing), Maruti Suzuki said that market sentiments will be negatively affected in the short run with the increase in the diesel prices. At present, the car makers are making long term investment in diesel projects and hence transparency is required from the Government side regarding the fuel policy.

Petrol prices have been reduced by Rs. 2 per litre; however, the present policy is favorable for diesel. As diesel is heavily used in non-auto applications and commercial vehicles, it enjoys subsidy of Rs. 10 per litre. According to the policy makers, the top-end cars and SUVs which consume large amount of fuel have to pay high price for it.

The Government raised the price of diesel in June 2011 and since then no increase has been made. To reduce the impact of price increase, the policy makers had to reduce the custom and excise duty. Hence, Rs. 38,000 crore revenue had to be forfeited. Although automobile manufacturers are not in the favor of price hike of diesel cars, the final call has to be made by the Government.