Removing the Subsidy on Diesel for Cars and SUVs

This is a such a welcome change in the thought process - to remove the subsidy or find alternative pricing mechanisms for diesel fuel consumed in the cars and SUV's. A table posted in the article - diesel consumption in India by vehicle type

Cars and SUV's = 15%
Farms = 12%
Buses = 12%
Trucks = 37%
Industry = 10%
Power generation = 8%
Railways = 6%

Published in Mail Today, August 5th, 2011 "With the government indicating on Thursday that it would look for a way to end the flow of cheap diesel to fuel cars and sports utility vehicles (SUVs), auto manufacturers, who were banking heavily on this segment, are keeping their fingers crossed. Finance minister Pranab Mukherjee stated in the Lok Sabha that passenger vehicles consume about 15 per cent of the diesel sold in the market and the government would try to work out a mechanism so that this section is not subsidised. Diesel, which is considered a politically sensitive fuel because of its use in the farm and public transport sectors, is currently priced ` 23 per litre below the price of petrol. This has swung the demand in favour of diesel cars and SUVs. Oil minister Jaipal Reddy said the government is considering various proposals, which include either levying a duty on diesel cars or having dual pricing for the fuel. However, the proposal to sell diesel at two different prices for cars and tractors at the same pump had been rule out earlier as it would lead to black marketing. “ We think subsidised diesel is not being properly utilised,” Reddy said, adding that levying hefty duty on diesel cars is also one of the proposals under consideration. “ Even though it is too early to comment but if the government takes any such move, this will be a blow to the auto sector in general,” a senior official at Maruti Suzuki India Ltd told M AIL T ODAY . “ Diesel cars are doing better sales than petrol cars from past few months, thanks to the hike in petrol prices. This move will be a blow to the automobile sector in general as many of them have invested hugely in their diesel models,” the official added. The demand for diesel cars has been rising in the recent months. Currently, it accounts of about 70 per cent of MSIL’s sales. The company was already in the process of expanding the production capacity of diesel engines on the back of the recent surge in demand. The company is already to launch the diesel version of its popular Swift model this month. Other companies, including General Motors and Hyundai are already investing in expanding their diesel portfolio. Hyundai Motors has announced investment of ` 1,500 crore for its diesel unit near Chennai. The new diesel engine plant will be ready for production by 2013. Ford India has also said it will invest $ 72 million to boost capacity at its local engine plant, with special emphasis on diesel engines. “ Ford plans to raise production capacity at its Chennai factory in the southern Indian state of Tamil Nadu by 30 per cent, to meet the rising demand for diesel- powered vehicles,” the company had said earlier. According to Karl Slym, president and managing director, General Motors India, “ If you look at the composition of the hatchback segment, 80 per cent sales is of diesel and 20 per cent of petrol cars.” However according to market analysts it will benefit companies like Honda Siel Cars India as the company has no diesel variants. The petrol- fuelled iconic Honda City model was hit hard due to the rise in petrol prices. However, the government’s latest move may give a push to the company’s sales."

Another article of interest, "Diesel Subsidy Skewing the Indian Car Market"