India’s oil minister proposes additional taxes for diesel-powered vehicles

India’s oil minister Jaipal Reddy cut his trip to Turkmenistan short and rushed back home to quell protests after three state-owned fuel retailers (Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp.) raised gasoline prices by 11.5%, by far the largest gasoline price increase in the country.
Although retailers did cut prices by 3%, Reddy is now advocating an alternative approach which he believes will help ease the country’s financial woes without increasing prices at the pump. Reddy has asked Finance Minister Pranab Mukherjee to impose taxes on cars and sport-utility vehicles (SUV) that run on diesel fuel.
Reddy’s proposal calls for the imposition of an additional excise duty of Rs 170,000 (US$3,048) on small diesel cars and Rs255,000 (US$4,573) on diesel sedans and SUVs. Reddy argued that his proposal eliminates an unfair distortion in the current system which allows owners of luxury cars and SUVs that run on diesel fuel to benefit from high discounts that are intended to help the poor.
Retailers in India have increased the price of gasoline several times since 2011, while diesel prices were raised only once since last year. Because the price of diesel fuel is subsidized, it is now 43% cheaper than gasoline in New Delhi. Retailers have claimed that they lose Rs12.53 (US$0.23) on every liter of diesel fuel they sell. Since the government compensates retailers for their huge losses, the diesel subsidies have taken a major toll on the government’s finances.
The large gap between the prices of gasoline and diesel fuel has resulted in higher sales volume for diesel vehicles and automakers are now cutting down on production of gasoline vehicles. There are understandably few supporters for Reddy’s new proposal. BMW India’s President, Andreas Schaaf, said that any additional burden on customers would complicate an already difficult business environment.
The president of the Society of Indian Automobile Manufacturers (SIAM), S. Sandilya, said that deregulating diesel fuel prices would be better than imposing additional taxes on vehicles that run on diesel fuel. (June 14, 2012)