With no tax on diesel vehicles, auto makers mull expansion

As the Budget has spared diesel vehicles from the much feared additional tax, auto firms such as M&M, Hyundai and Maruti Suzuki are expected to press ahead with plans to expand engine capacities in this segment.

Before the Budget 2012-13 was presented on Friday, Society of Indian Automobile Manufacturers (SIAM) had said that fear of diesel tax and lack of a clear roadmap on diesel pricing led auto companies to hold back investments of more than Rs 3,000 crore in India.

At present, petrol is deregulated but diesel prices are still decided by the government, which provides subsidy on the fuel that is used by the transportation sector and impacts the cost of several essential goods and services.

Rising petrol prices have increased manifold the demand for diesel vehicles over the past couple of years. Hence, of late, there has been strong demand from various quarters for an additional tax on diesel cars.

"There has been no mention of an additional tax on diesel vehicles or on the existing  differential pricing of diesel in the Budget. I would therefore assume that diesel vehicles will not be treated any differently," Mahindra & Mahindra President (Automotive and Farm Equipment Sectors) Pawan Goenka told PTI.

He said this will encourage companies that had held back investments on new diesel engine capacities, awaiting clarity on the issue, to go ahead with their plans.

"As far as M&M is concerned, whatever we have held back on increasing production capacity of diesel vehicles, we will be going ahead now," Goenka said.

While he did not specify how much investment was held back on diesel expansion, the company had announced that till FY14 it will invest Rs 5,000 crore on new products and capacity.

Hyundai Motor India Ltd (HMIL), which had put on hold its Rs 400-crore diesel engine plant last year, said it is evaluating the situation after the Budget.

"We have to weigh the pros and cons as there has been no mention of diesel tax in the Budget.

Within two weeks we will be taking a decision on whether we should go ahead with our diesel plant or not," a spokesperson for HMIL said.

The plant was envisaged to have an annual capacity of 1.5 lakh units for three types of engines -- 1.1 litre, 1.4 litre and 1.6 litre for the domestic market.

Maruti Suzuki India (MSI), which has also been awaiting clarity on the issue, said those companies with diesel manufacturing capacity would be pleased with the Budget's silence on petrol-diesel price differential.

Asked if MSI would consider going ahead with the plans for increasing diesel engine capacity, company Chairman RC Bhargava said: "We can only say after the project report is completed and considered by the management."