Gasoline Is Thicker Than Diesel
It was a bumpy ride. As everybody who is anybody in the automobile industry came face to face with distinguished industrial policy makers, the discussions changed track several times. But for all the twists and turns, the focus of the discussion kept coming back to the one issue that's keeping all auto manufacturers awake at night "" the gulf between petrol and diesel prices which is making life rather difficult for most petrol car makers.
The 36th annual session of the Association of Indian Automobile Manufacturers (AIAM) also saw serious deliberations, heated arguments and friendly banter on themes ranging from vehicular pollution and road infrastructure to exim policy and foreign technology agreements.
But the exchange of ideas went on overdrive when R C Bhargava, managing director, Maruti Udyog Limited (MUL), suggested that the government compensate the petrol car manufacturers for the high price differential between petrol and diesel. When you look at the two car manufacturers, the one who makes diesel cars has an advantage because the difference of Rs 16 per litre between diesel and petrol skews the demand in his favour, pointed out Bhargava.
This argument drew sharp and varied reactions from all sides "" the excise authorities, manufacturers of diesel-driven vehicles, and those like him who are yet to enter this segment. In fact, what triggered off this debate was a seemingly harmless remark made by N Mohanty, secretary, department of industrial policy and promotion in the ministry of industry. Summing up the government policy for the automobile industry, he said, It is the market which will determine the fortunes of car manufacturers.
Bhargava, who has, in the recent past been on a near-collision course with the government, pounced upon this claim, saying, The government cannot, in all fairness, say that the market is neutral, when this price differential is distorting market competitiveness. To ensure a level playing field, Bhargava believes thereis a need to review the current policy of imposing uniform excise duty rates (40 per cent on all cars and 20 per cent on jeeps and utility vehicles), and compensate companies like MUL by slapping an additional tax on diesel cars.
B C Rastogi, chairman of the Central Board of Excise & Customs remains unmoved by this logic. He explains that there is a uniform duty on all vehicles with the same seating capacity "" the criterion which determines whether the vehicle is for public or private use. He brushes aside Bhargava's contention with: He is seeking to introduce an alien criterion. Today, he wants a tax on diesel cars, tomorrow, someone will talk about battery operated cars "" am I going to have different rates of duties for everybody?
Meanwhile, the industry feels that Bhargava is overlooking the fact that diesel technology is costlier, which can wipe out the advantage of lower operational costs. A customer pays at least 10-15 per cent more, when he chooses a diesel-driven vehicle before he enjoys the on-going price advantage. Besides, after every three to five years, diesel-driven vehicles have to be overhauled, which is another major expenditure.
An industry expert made the snide observation that Bhargava's arguments come at a time when the diesel-driven models of his competitors, Mahindra and Mahindra Ltd (M&M) and Telco are zipping ahead of the petrol-fired Maruti Gypsy. For instance, between January and May this year, M&M (which enjoys a market share of 57 per cent in the utility vehicles segment), notched up an impressive sales figure of 26,113, while Maruti sold only 4,539 Gypsys.
Most car manufacturers are now getting into top gear with their plans for diesel models. We had planned to produce and sell equal numbers of diesel and petrol cars. But since we started with petrol cars, we now have a backlog of unmet demands for our diesel cars. says Dr Volker Klien-Albenhausen, managing director, Mercedes-Benz India Ltd. Mahindra Ford India Ltd, which recently closed the bookings for Ford Escort is also in tual="/incs/right.asp"-->