Recently, I read an article about Government of
India’s (GOI) plan to increase the taxes on diesel cars in Business standard,
February 29 (http://business-standard.com/india/news/mahindra-may-cut-expansion-plans-if-govt-imposes-diesel-tax/466234/). I strongly feel this is not the right time to do it.
Let me quickly give you a glimpse of the Government
policies, consumer behavior and Indian automobile industry to substantiate this
point.
The main reason for raising taxes is because
government is giving subsidy of Rs 5 - 6/ litre of diesel. This is a huge loss
of nearly Rs. 86,000 crore every year, and also leads to environmental
pollution. But in the real scenario only 10 – 12% of diesel is consumed by cars
(Business Today January 14, 2012). (http://businesstoday.intoday.in/story/union-budget-2012-2012-10percent-extra-duty-to-be-imposed-on-diesel-cars/1/21630.html)
Currently the passenger car market is divided as 60%
petrol cars and 40% diesel cars. This shows that there is a good market for
diesel cars in the future. We all know that disposable income of Indians is
increasing, everyone aspire to own a car. The buyers are too price conscious.
If government increases the tax of diesel car vehicles, there would be a 10 –
20% increase in price of cars. In this situation, customer decisions may be:
1) More
Customers would withdraw the plan of buying cars.
2) Some
Customers would stick to the decision of buying diesel cars.
3) Only
few customers would turn to buy petrol cars instead of diesel cars, because
price of petrol is 60% higher than diesel.
Due to the
fear of increasing tax among the customers, car sales in February grew 13.11%
to 2,11,402 units. Even this is the
first time ever the monthly car sales crossed 2 lakh units. Also Maruti Suzuki
has got 80% of bookings in diesel cars in the month of February 2012. This
clearly proves that customers are price conscious and increase of taxes would
not encourage them to buy a car.
As a result, the sales of cars might come down.
Foreign Companies like Ford, Nissan have pumped huge money in diesel car
manufacturing plant in India. Tax raise might demotivate them to do business in
India. Even Indian companies like Tata and Mahindra &
Mahindra will get affected, since they are selling more diesel cars in the
Indian market. As a proactive step, M & M recently stopped their expansion
plan in Chakan, Pune unit. At the end of the day it may affect the Indian
Economy.
Do you think it is the right time to increase the
taxes on diesel cars?
Hi Srini,
ReplyDeleteHow about this interesting statement from Economic SUrvey 2011-12: "...charging high road and vehicle taxes as an option.....since such low prices (of diesel) and subsidies are providing incentives for misuse, sjifts to diesel use such as luxury sports vehicles,escalating imports in an energy-insecure country and increased pollution loads!"
Hello Mr.GNR sir,
ReplyDeleteIn country like India, misuse like this are happen everywhere. Even in subsidies like fertilizer, electricity etc, people are squandering lot of money. Government has to consider many things before do such a move.
Coming to the pollution control, i think Government is not much interested in controlling pollution otherwise they wont increase the duty of premium bicycles, because now a days premium bicycles are substitute for two Wheeler.
In some countries, Government encourage bicycle riders by putting more road tax for two wheeler and four wheeler. But we are doing things differently.
Great to see you students blogging on topics of immediate relevance. I am sure our students start visiting your Blog, and give their comments as well.
ReplyDeleteMore than this diesel vs. petrol issue, I think the need of the our is the choice between the private vs public transportation. Everybody aspires to own a car at some point of time or other. It indicates your arrival or more precisely graduating into the 'consuming' class. Government should go beyond the current
issue of taxing diesel more or petrol. A holistic look at the transportation needs on the one hand and growing aspirations of the people on the other in the backdrop of its implication on environment is what we need to focus on.
S.Gnanaharan