The government, battling high inflation, said on Thursday that it was mulling ways to check the usage of subsidised diesel to segments such as luxury passenger cars and power generation for malls, hotels and other commercial purposes that do not deserve cheaper fuel at the taxpayer’s cost.
Plans seem afoot to see that usage of subsidised diesel is restricted only to farmers and transport trucks. This could mean that diesel might become expensive for passenger cars.
Replying to a Parliament debate on price rise, finance minister Pranab Mukherjee said, “Certain suggestions have come to deny subsidised diesel to malls, hotels, luxury cars and cell towers.” “We can consider the suggestions and try to work out a mechanism to see that this section is not subsidised.”
Following this, shares of auto majors such as Maruti and Tata Motors dropped by 1.2 and 1.5% respectively, while Mahindra & Mahindra’s shares plunged 4.5%.
However, Mukherjee later clarified in a statement that the Centre was moving towards decontrol of diesel prices and “there are no other proposals under the consideration of the government” (with regard to diesel).
Following a huge difference in petrol and diesel prices, currently at R22 per litre, the share of diesel cars in overall passenger car sales has been increasing rapidly.
Diesel cars currently account for 30% of car sales and analysts expect diesel car sales to account for 50% by 2015.
The minister told parliament that cars accounted for 15% of India’s diesel consumption.
Echoing the finance minister’s words, petroleum minister Jaipal Reddy said, “Subsidised diesel is not being properly utilised and I agree that it should not be used for luxury cars and for generation of power by malls and hotels.”
The ministers’ statements sparked speculation that the government was mulling a dual pricing regime for diesel in which luxury car owners would be targeted for higher rates.
Reacting to the speculation, Pawan Goenka, President, automobiles at Mahindra & Mahindra, who is also president of the Society of Indian Automobile Manufacturers, said, “We are not against dual diesel fuel pricing. The mechanism needs to be carefully defined so that it has the desired effect and cannot be misused.”
However, India's largest car manufacturer Martui said that a move to decrease the gap in petrol and diesel prices will result in higher sales of the petrol model.
Speaking on inflation, Mukherjee said the government was taking all necessary measures to curb prices.
“Inflation has been caused by external factors, over which the government has no control,” Mukherjee told parliament.