Diesel cars may get dearer as government mulls to raise excise duty

Indian Government is likely to raise the excise duty on the diesel cars according to the latest reports. Diesel technology is more expensive than the petrol engines and hence the diesel cars are dearer than the petrol cars by around Rs 80,000 to Rs 1 lakh. Despite the costlier diesel cars, consumers tend to opt for a diesel car over the petrol variants due to the fuel efficiency exhibited by the diesel cars. Moreover, the diesel prices are considerably lower than the petrol by a margin of Rs 20 at present, especially after the deregulation of the petrol price in June 2010 and the recent petrol price hikes. 

Diesel, on the other hand is still offered at a subsidised rate due to its extensive usage in the agricultural and the transportation sectors. The buffer between the subsidised rate and the actual price is borne by the government. The government has taken the step to levy excess excise duty on the diesel cars to break even with the losses incurred by them. Any form of diesel price hike reflects directly on the inflation, which is measured by the fluctuations in the most commonly used commodities. Therefore, the government has been offering this fuel at a regulated price and is trying to continue with the same despite many efforts from the oil ministers who are in favour of deregulation. While the government’s intention is to back the transportation and the agricultural sectors with the subsidised diesel rates, the benefits are passed on to the private car owners and the taxi owners. However, this is yet a proposal and needs the government’s approval to go ahead with the deregulation. This means, if approved, the diesel prices are likely to go up to further fuel the already sluggish car market.

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