India expects carmakers to proceed with diesel engine expansion

Carmakers in India, namely Mahindra and Mahindra Ltd. (M&M), Hyundai Motor India Ltd. and Maruti Suzuki India Ltd., are expected to proceed with their plans to expand engine capacities in the diesel segment after the government spared diesel vehicles from additional taxes. Gasoline has been deregulated but the government still decides on the price of diesel fuel, which still enjoys subsidies because it is used by the transportation sector and has a direct impact on the cost of essential goods and services. The rising prices of gasoline has considerably increased the demand for diesel vehicles over the past two years and several quarters have been demanding for additional taxes to be levied on diesel cars. The government hopes that sparing the diesel segment from additional taxes will encourage carmakers that have been holding back investments to proceed with their plans to raise their diesel engine production capacities. Pawan Goenka, president of Mahindra & Mahindra Ltd., said, “As far as M&M is concerned, whatever we have held back on increasing production capacity of diesel vehicles, we will be going ahead now.” M&M announced that it will invest Rs 5,000 crore (US$970.68 million) on new products and capacity expansion until the 2014 fiscal year. Hyundai said it is still evaluating the situation, after putting on hold the construction of its Rs 400 crore (US$77.64 million) diesel engine plant last year. Maruti Suzuki Chairman R.C. Bhargava said: “We can only say after the project report is completed and considered by the management.” (March 18, 2012)