A war of words has broken out between the ministries of petroleum and heavy industries over the former's proposal to increase excise duties on diesel cars.
Two days after oil minister Jaipal Reddy wrote a letter to the finance minister Pranab Mukherjee recommending a steep increase in excise duties of diesel cars, a senior heavy industries ministry official told HT that Reddy has no right to comment on the taxation policies of the automobile industry as it does not fall under his purview.Reddy has proposed levying a duty of atleast Rs. 1.7 lakh on every small diesel car and a maximum of Rs. 2.5 lakh on a mid size diesel sedan. At present, excise duties on passenger cars range between 12% and 27% with a fixed duty of Rs. 15,000, depending on the engine size and length of the vehicle.
"What right does the oil ministry have to recommend an excise duty increase?," the official said. "They should only be bothered with the prices of petrol and diesel. Who will invest in India if such a regressive tax is imposed?"
Heavy Industries minister Praful Patel is also learnt to have written a letter to finance minister rebutting Reddy's June 7 letter. Patel had also backed the industry when such a proposal was being discussed in the run up to the budget.
Patel's opposition is at the behest of the automotive industry which has suggested deregulating diesel prices rather than increasing excise duties on cars.
"Taxing diesel vehicles more is a very short term solution, if at all," said Michael Boneham, president and managing director, Ford India. "It would be much better if diesel prices are raised and linked to the international prices."
The high difference in prices of diesel and petrol has resulted in a marked shift in consumer sentiment in favour of the diesel vehicles. The share of diesel in overall passenger vehicle sales has gone up from 38% in 2010-11 to nearly 48% this year.
Due to this differential, diesel consumption went up by 7.2% in 2011-12 from 6.2% in 2010-11 while growth in petrol sales declined from 10.7% in 2010-11 to 5.6% in 2011-12. The subsidy on diesel alone is expected to increase from Rs. 81,192 crore in 2011-12 to over Rs. 1 lakh crore in 2012-13.