The transition of public vehicles from diesel to CNG, achieved after a struggle of several years and after much pain by commuters and vehicle owners, is now being undone by an unexpected force — the government’s higher tax rate on petrol.
In a significant move that may have big implications for India’s car industry, particularly leaders like Maruti Suzuki and Tata Motors, the Environment Pollution (Prevention and Control) Authority (EPCA), which played a crucial role in the introduction of CNG into Delhi ten years ago, has diesel cars in its cross hairs.
The agency had first warned the Supreme Court five years ago that the sale of diesel cars must be banned in the national capital region of Delhi. Now, in a new report in 2012, the agency has again repeated its request.
“The EPCA in another report in 2012 has stated that the benefits of Compressed Natural Gas (CNG) transition are not visible due to growth in diesel vehicles, because diesel vehicles are known to emit higher smoke, particles and Nitrogen Oxides (NOx) than petrol fuelled cars. The EPCA has also observed that in Delhi the growing number of vehicles particularly the diesel vehicles is negating all efforts made to reduce air pollution by phasing out diesel buses and converting them to CNG mode,” Jayanti Natarajan, environment minister, said in a statement.
Diesel is a ‘heavier’ fuel than petrol and contains relatively more carbon atoms than petrol and LPG. As a result, for a given volume (a litre), diesel can potentially deliver more energy than petrol, but is more difficult to burn. Indian diesel cars typically give 15% more mileage compared to petrol for every litre, and are cheaper to buy, making diesel cards cheaper to run.
In addition, India has seen an explosion in the popularity of diesel cars in the last eighteen months due to a sharp spike in petrol prices. Petrol prices have been allowed to be raised while diesel prices have been controlled by the government for fearing of triggering a domino price rise effect in the market.
As a result, taxes on diesel have remained at around 50% while those of petrol are closer to 100% due to a differential taxing and subsidy mechanism by the government.
As a result, while the price of a litre of petrol is Rs 38.50 in the international markets, it is Rs 76 in Bangalore. Similarly, the price of a litre of diesel is Rs 42.70 in the international markets, while it is about Rs 50 in Bangalore.
Despite the fact that a typical diesel car costs Rs 150,000 more than its petrol variant, and is often costlier to maintain, consumers have been going for diesel models to reduce their fuel bills.
As a result, in the first six months of this financial year, sales of petrol cars fell 15%, while those of diesel cars rose 29%.
Not surprisingly, on an all India basis, the share of diesel cars rose from 25% three years ago to more than 50% by the middle of 2012. A price hike in Diesel has since dampened some of the enthusiasm for diesel cars, however.
The government has planned a price hike for diesel over the next ten months, which, if implemented, would make the cost of running a petrol car virtually the same as that of a diesel car for nearly all individual car owners. For those who use their cars sparingly (less than a 1000 km per month), a petrol car may become a cheaper option. On the other hand, for heavy users such as taxi operators, diesel cars are likely to continue to be attractive.