In an attempt to compensate for the heavy usage of subsidised fuel in vehicles, Oil Minister S. Jaipal Reddy recommended a hike in excise duty on diesel cars to the Finance Minister Pranab Mukherjee. In his letter, Reddy quoted the huge price gap of Rs. 30.25 per litre between petrol and diesel, which has caused the sales of diesel cars to skyrocket. He also pointed out that diesel is available at Rs. 40.91 in New Delhi, while petrol costs Rs. 71.16 for every litre.
Besides the wide gap in the price of both the fuels, there was also gap in rate of excise on both which stood at Rs. 12.72 a litre. The excise duty on petrol is Rs. 14.78 for every litre while diesel attract a tax of just Rs. 2.05 per litre. According to Reddy, the difference between petrol and diesel comes to Rs. 25.75 a litre, if the Rs. 12.53 a litre subsidy on diesel is taken into account.
Diesel offers a profits of Rs. 1.70 lac per small car and Rs. 2.55 lac for medium sized models at mileage of Rs. 18 per litre for small diesel cars and Rs. 12 a litre for mid-sized cars. In the letter, he also put the point of barring the rich from using the subsidised fuel since personal cars and SUVs consumes 15 per cent of total fuel consumption.
Reddy feels that a higher excise duty needs to be imposed on diesel cars to pave the gap between both the fuels since an additional excise duty of Rs. 80,000 per car is not enough. He also emphasised that compared to 6.2 per cent growth rate in 2010-11, diesel consumption grew by 7.2 per cent in 2011-12 all because of the price difference. Meanwhile, the sales of petrol dipped to 5.6 per cent in 2011-12 from 10.7 per cent in 2010-11. This sharp hike in the consumption of diesel against petrol since last year is mainly due to the large subsidy on the former. Reddy also said that adding the subsidy on diesel alone will take it to more than Rs. 1,00,000 crore in 2012-13 from Rs. 81,192 crore in 2011-12, at current price.
Previously, President of Society of Indian Automobile Manufacturers (SIAM), S. Sandilya stated, “Countering the effect of one distortion by creating another distortion is neither good economics nor good politics.” He said this when the car manufacturers met the officials of the Finance Department. Sandilya also commented, “Government needs to take positive policy measures to make petrol cars more attractive, viable and acceptable to the consumers, rather than penalize diesel cars through even higher taxes and making them more expensive to the point of unviability.”
