The Society of Indian Automobile Manufacturers (SIAM) has asked Government to reduce the differential between petrol and diesel prices as soon as possible to offset the huge imbalance that has set in the car demand pattern after the recent petrol price hike.
In an official statement issued today, S. Sandilya, President, SIAM said that in the recent Union Budget, excise duties on all vehicles, including diesel cars has been hiked by as much as 2pc to 5 pc, with the maximum hike of 5pc being in the case of cars which are more of than 1500 cc engine capacity, including all large diesel cars. This has taken up the total excise burden on mid-sized and large cars to 27pc. Furthermore, as diesel cars are more expensive by up toRs. 1 lakh, they contribute much higher revenue to Government as compared to petrol cars. Therefore, there is no case for a further hike in excise duty on diesel cars as isbeing suggested once again by certain quarters.This is the highest excise duty on any state-of-the-art, manufactured engineering product, Sandilya added.
Sandilya said that the steep hike in petrol price last week has depreciated the “value for money” perception for petrol cars in favour of diesel cars which has distorted the market structure and resulted in an unnaturally high demand for diesel cars. Therefore, Government needs to take positive policy measures to make petrol cars more attractive, viable and acceptable to the consumers rather than to penalize diesel cars thru even higher taxes and making them more expensive to the point of unviability. With petrol cars not in demand due to the high petrol prices, any higher tax on diesel cars beyond the existing 27pc would only stifle the already flagging sales of cars in the country which will also have a huge adverse impact on Government revenues.Countering the effect of one distortion (in fuel pricing) by creating another distortion (higher excise duties on diesel cars) is neither good economics nor good politics. Such a move will only kill the golden goose which would contribute more than Rs. 20,000 crore of excise revenue to the exchequer every year, cautioned Sandilya.
The Government has to instead focus on narrowing down the price gap between petrol and diesel fuel. While reducing the taxes on petrol can help in reducing petrol prices on one hand, a moderate hike in the administered prices of diesel by Rs. 2 to 4 on the other hand can significantly narrow down the gap between the prices of these two competing fuels without stoking long-term inflation. Such a move would garner significantly higher revenue for Government as well as bring the car demand on an even keel which would also enable the industry to take their future investment decisions in a more pragmatic manner. The consumers will also get benefited due to the certainty in fuel pricing empowering them to take their car purchase decisions based on sustainable market realities.
For all stakeholders – government, industry as well as consumers, this would be a win-win situation asserted Sandilya.
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