Thursday, August 4, 2011

Car owners may soon have to pay more for diesel in India

Driving your diesel car might soon be expensive if the Finance Minister decides to end the subsidy on diesel for passenger cars. That's because while petrol prices are linked to market rates, the government gives a subsidy of Rs. 6.08 per litre on diesel.

Finance Minister Pranab Mukherjee today hinted that the government may look at a dual pricing for diesel. Fifteen per cent of the diesel produced is consumed by passenger vehicles so the government might remove the subsidy on diesel for passenger cars.

Because of huge difference in petrol and diesel prices, currently at Rs. 22 per litre, the share of diesel cars in overall passenger car sales has been increasing rapidly. Diesel cars currently account for 30 per cent of car sales and the analysts expect diesel car sales to hit 50 per cent by 2015.

Replying on the debate on price rise, Mr Mukherjee said, "High prices are there… Certain suggestions have come... but one thing to do... heavily tax those sectors which are not essential... out of 100 barrel of diesel… 10 per cent goes to industry... agriculture uses 12 per cent…. 8 per cent for power… 15 per cent for passenger cars where we can accept your suggestion and try work out that these sections are not subsidized…"

Petroleum Minister Jaipal Reddy has also said that the government is mulling over the possibility of a differential subsidy package on diesel.

Reacting to the possibility, India's largest car manufacturer Martui said that a move to decrease the gap in petrol and diesel prices will result in higher sales of petrol model. Diesel engines are more sophisticated today so sales wouldn’t plummet, the company said but overall demand may be impacted in the short term if price of both fuels spike. 

No comments:

Post a Comment