The oil ministry is baying for it. Envrionmentalists have started targeting it and the finance ministry is eyeing it for garnering extra revenue.
Suddenly, diesel car makers are finding themselves in the limelight, literally. The only ray of hope for a struggling domestic automotive industry, they are finding themselves under attack from all sides.
Barely three months after finance minister Pranab Mukherjee left excise duties on diesel cars untouched in the Budget, oil minister Jaipal Reddy’s recommendation to increase the duty on diesel cars between Rs 1.7-2.6 lakh, has stoked the hornet’s nest yet again.The share of diesel cars in overall sales has gone up substantially from just 38% in 2009-10 to over 52% this year, at a time when the industry is witnessing sluggish growth. To cash in on this growing trend, carmakers including Maruti Suzuki, Ford and Mahindra and Mahindra have lined up investments in diesel engine plants. The future of such investments will be uncertain if the trend changes dramatically.
“Our investments in diesel engines were made on the basis of certain assumptions based on market conditions,” said Michael Boneham, president and MD, Ford India. “It will be unfair if things are changed dramatically.....we will have to look at what kind of capacity we are installing.”
After two consecutive years of high double-digit growth, car sales grew by just 4.7% in 2011-12 and is expected to grow between 11% and 13% in the current fiscal year.
The domestic car industry is, however, not amused by oil ministry’s suggestions.
“It will have a huge impact on the automobile industry which is already under stress,” said Sandeep Singh, deputy managing director, marketing and sales, Toyota Kirloskar Motor. “The best option would be to take a small increase in diesel prices that would generate more revenue for the government.”
While an increase to that magnitude is unlikely, the significant gap between petrol and diesel prices would ensure that diesel cars would remain attractive even if duties are hiked marginally.
But diesel cars have come under attack from other quarters as well. A World Health Organisation report recently blamed noxious fumes from diesel vehicles for causing lung cancer and tumours in the bladder. It has further exacerbated the case for diesel cars and given fresh ammunition to domestic environment lobbies.
“India must note that this decision has come from a rigorous review of the latest scientific evidence on the cancer-causing potential of diesel and petrol exhausts,” said Anumita Roychowdhury, head of air pollution control
unit at CSE. “Evidence on diesel’s toxicity has been mounting over the past 20 years, which has already compelled stringent regulatory action on diesel quality and emissions standards in other regions of the world.”
The industry has hit back saying that the report is misleading and based on outdated data.
“It does not take into account the new age diesel engines that are more fuel efficient and less polluting,” said a senior industry official. “What other reason could be that 75% cars in Europe, one of world's most developed car markets, are run on diesel.”