Transport Minister mentions tax on diesel vehicles: Why is diesel under pressure?

Source: The post is based on the article “Transport Minister mentions tax on diesel vehicles: Why is diesel under pressure?”  published in Indian Express on 12th September 2023

What is the News?

The Road Transport Minister has suggested that people should shift away from using petrol and diesel fuels. 

He mentioned that if the usage of diesel-powered vehicles continues, he might propose to the Finance Minister the imposition of an additional 10% GST on these vehicles as a “pollution tax”.

Note: Government already imposes a 28% tax on diesel cars, plus an additional cess depending on the engine capacity, taking the total tax to almost 50%.

– A committee appointed by the Ministry of Petroleum and Natural Gas recommended a ban on diesel four-wheel vehicles by 2027 in cities with a population of more than 1 million.

How much percentage of India’s transport vehicles use diesel?

Diesel accounts for about 40% of India’s petroleum products consumption.

Around 87% of total diesel sales are to the transport segment, with trucks and buses accounting for about 68% of diesel sales in the country. 

Three states — Uttar Pradesh, Maharashtra, and Haryana — account for almost 40% of the diesel sold in India.

In the car’s segment, the contribution of diesel demand has fallen to 16.5% from 28.5% in 2013.

Why have carmakers started to move away from diesel?

Firstly, the higher compression ratio of diesel engines means increased emissions of oxides of nitrogen (NOx), which is one of the main drawbacks of diesel engines versus petrol.

Secondly, carmakers like Maruti Suzuki have decided to exit the diesel segment due to the introduction of the new BS-VI emission norms from April 1, 2020.The cost of upgrading diesel engines to meet these stricter standards was prohibitively high. 

– Car manufacturers argued that the government’s decision to skip from BS-IV to BS-VI made it economically unviable to continue offering diesel engines in their portfolio.

What is the reason an individual user might prefer diesel to petrol?

Firstly, higher fuel economy of diesel engines compared to petrol is a factor.Diesel has greater energy content per litre and diesel engines are inherently efficient.Diesel engines do not use high-voltage spark ignition (spark plugs) and use less fuel per kilometer as they have higher compression ratios.This makes diesel the fuel of choice for heavy vehicles.

Secondly, diesel engines offer more torque (rotational or turning force), and are less likely to stall as they are controlled by a mechanical or electronic governor, thereby proving to be better for haulage.

Thirdly, for individual car owners, the cost of running a vehicle is a crucial factor.In India, diesel-powered cars were highly popular for nearly a decade with diesel cars making up 48% of passenger vehicle sales in 2013.

— This popularity was largely due to the significantly lower price of diesel compared to petrol, with a substantial price difference, at its peak of Rs 25 per litre.

– However, the situation changed when fuel prices were deregulated in late 2014.The price difference between diesel and petrol has since narrowed to around Rs 7 per litre, the closest they have been in price since 1991.

— As a result, diesel cars accounted for less than 20% of overall passenger vehicle sales in the fiscal year 2021-22.