If imposition of high taxes on diesel cars does not find a place in the national budget of the government, Suzuki Motor Corporation would get the go-ahead to set up a second diesel engine facility in India.
“We need policy clarity on diesel cars before we decide to make any investment for a second diesel engine plant. We will have to wait until budget and see what is the government’s stand on diesel cars. SPIL (Suzuki Powertrain India Ltd) is running to full capacity, and if the demand for diesel cars continues to grow even after the budget, we will have to look for expansion.” said R.C. Bhargava, Chairman of Maruti Suzuki India Ltd.
It must be noted that the market share of diesel cars running in India got a noticeable boost, as it swelled by 6%, to touch the 23% figure over the past 8 months of 2011 fiscal. The sudden growth of diesel car sales comes close on the heels of widening gap between the prices of petrol and diesel that recently stood at Rs.30 a litre.
Car buyers have shown great inclination towards diesel-run vehicles, albeit they carry much higher price tags, as petrol prices reached a backbreaking Rs.65.65 a litre in Delhi, against Rs.40.41 for diesel. A tax levied on diesel cars would break the plateau of significant proliferation of diesel-run cars in the country, and subsequently curtail the government's spending on fuel subsidies.
Discussing about the possibilities, Nikhil Deshpande, an analyst at Pinc Research, a Mumbai-based brokerage said, “Logically, it seems it could happen. The government is cash-strapped at the moment and there may not be much political opposition to this either.” But from business perspective, there needs to be clarity on this. This is holding up a lot of investments.”
There is a high probability that the government would incorporate a policy in the budget, made for the year starting 1st April, which will disallow car buyers to take advantage of subsidies offered on diesel.
Bhargava said that, at present, it would be too early to comment over the magnitude of investment that will be made for the diesel plant. “First, we will have to figure out about the kind of expansion we want, and then if there is enough land. If not, then we will have to look for an alternate site,” he added.
Fiat India, equally owned by Fiat SpA and Tata Motors Ltd., has the capability of producing 300,000 diesel and petrol engines every year. The car company also serves as a supplier of diesel engines to Tata Motors, which uses these in its Indica Vista hatchback and Indigo line-up. The same engine finds a place in Ford's Grande Punto hatchback and Linea sedan.
“It’s a time-gap arrangement with Fiat. Neither can they commit to be a permanent supplier to us and nor will we depend on them for that. If demand for Tata and Fiat’s cars goes up in the future, Fiat powertrain’s immediate priority will be them. So, as we go along, we will have to look for other options.” Bhargava said.
Thus, Suzuki Motor Corporation is likely to contemplate over the move of adding another diesel plant under its belt as the government's frame of mind could undoubtedly hinder its development plans severely.
