Socially useless vehicles

All energy subsidies are a bad idea anyway

Indian automobile makers predictably, and the German ambassador somewhat unpredictably, have taken exception to environment minister Jairam Ramesh’s objection to the owners of costly, large and heavy private cars, called SUVs (sport utility vehicles), benefiting from the subsidy given to diesel. German sentiments need to be placated first. Mr Ramesh is unlikely to have sought to criticise German automobile technology per se as polluting. In all likelihood, he mentioned brands like Mercedes and BMW because they have become synonymous with luxury cars, a space in which not only have the US auto majors lost out, but even fine names like Volvo and Jaguar are not top of the mind. In fact, Mr Ramesh should use another occasion soon to acknowledge what European and Japanese auto makers have done for compact, fuel-efficient cars — a segment that excludes SUVs.

Mr Ramesh’s point is simple and irrefutable. A subsidy meant to help the poor who use public transport, farmers who grow food to ensure national food security and goods transport is obviously not efficiently designed if it benefits rich people who own big, posh cars, deliberately styled heavily to convey a sense of power as an SUV is. Neither should it benefit rich farmers — they don’t even pay any income tax — who profit by selling groundwater, raised by using subsidised diesel, to neighbouring farmers. SUVs in particular, sporting pointless heavy, shiny fenders, have legitimately been pilloried for being over-designed ever since global warming became an issue. There is no need, in the present context, to go into the controversy over whether diesel is more polluting than petrol because petrol is not subsidised. It is also a bit self-serving for Indian auto makers to argue for a “cash for clunkers” scheme, which will boost sales through subsidies, when the specific issue is large cars which are inherent gas guzzlers. A subsidy for scrapping old cars that are energy-inefficient makes some sense, though not much. The top priority in this regard should be to go after car and truck owners who do not meet emission norms. When were you last stopped and asked to produce a valid emission test certificate?

The entirely sensible import of Mr Ramesh’s comment is that the diesel subsidy needs to be properly designed. The government has moved in the right direction by raising the tax on bigger cars but as the Centre for Science and Environment has pointed out, this is peanuts compared to what owners of such cars get back via diesel subsidy. So, what more can be done? One way is to simply reduce the subsidy since it is significantly misdirected. Another can be to levy a lower tax rate on the profits of companies specifically engaged in public transport, like the owners of bus and truck fleets. This leaves out the many who own just one truck or a few. Since such trucks are also mostly older and more polluting, subsidy for scrapping “clunkers” can begin with them. This can go some way in pacifying this particularly obstreperous group of small businessmen who will be up in arms as soon as subsidy goes down and diesel prices go up.