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Petrol car demand to get a boost if diesel vehicle excise is hiked

New Delhi, Nov. 21: Sales of petrol cars, which have been languishing, could get a boost next year, if the proposal to increase excise duty on diesel cars finds its way in the Budget 2012-13. However, the interim period till the Budget, may see a rush towards diesel vehicles, say industry experts. Petrol car sales are likely to benefit because an increased initial cost of purchase of diesel cars after April, 2012 could offset the huge ownership benefit currently enjoyed because of subsidized rate of the fuel versus petrol.
Distorted pricing
At present the price of a diesel car versus the petrol variant of the same model is higher by around 16-25 per cent, though the manufacturing cost difference of the two variants is not as much. So, the premium enjoyed on diesel car sales by companies is also likely to get trimmed if they chose not to pass on the burden of higher excise duty. “Higher duties will slow down diesel car sales, but give a boost to petrol vehicles. The boost (for diesel cars) received through the subsidy of cost of ownership is not good and has created a huge distortion in demand. Personally, I would like the policy decision to happen now and not wait till the Budget,” Mr R.C. Bhargava, Chairman, Maruti Suzuki, told Business Line. Added Mr Kumar Kandaswami, Manufacturing Leader for Deloitte in India, “Diesel being subsidized for personal use is unviable. I think something is expected (from Budget) on this. The moment taxation comes, the demand should slightly slacken.”
Investment in tech
Recent investments by the car industry in diesel technology and engine manufacturing may also face turbulence, though much of the industry had stepped up investments in the area over the last year. “If we invest in diesel and this tax comes along, where does it leave us? We will have to look at our investments again and the current plans will be affected. The Government should stick to one policy, as our investments are for at least a 30-year period,” Mr Bhargava said. Maruti has been increasing production of diesel engines, while working out a separate engine supply deal with Fiat. Hyundai Motor India, the second largest carmaker and largest exporter, has also reportedly deferred its plans to set up a Rs 400-crore diesel engine plant due to sluggish demand. It currently imports such engines from South Korea.

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