Fuel for thought

Mr Gadkari's statement reflects a valid policy concern

Road Transport and Highways Minister Nitin Gadkari sent automobile stocks into a tailspin when he suggested that the government might increase goods and services tax (GST) on diesel vehicles by 10 percentage points, only to retract the statement 90 minutes later on X. Clearly, senior ministers should be more careful while speaking in public. But more serious thought should be applied to the intent behind Mr Gadkari’s statement. Speaking at the Society of Indian Automobile Manufacturers (Siam), he pointed out that the automobile industry must reduce the production of high-carbon-emitting vehicles. “Say goodbye to diesel... Please stop making them, otherwise we will just increase the tax so much that it would become difficult to sell diesel cars,” he said. But if auto-stock investors panicked, manufacturers should not have, not least because the taxation option on diesel cars or pump prices has reached its limits. Nevertheless, the policy direction towards dis-incentivising the traditional consumer preference for diesel vehicles has been clear for some years.

First, the government has imposed the highest GST rate of 28 per cent on cars, both diesel and petrol. Further, sports utility vehicles (SUVs), mostly diesel-guzzling and a favourite of India’s middle class, attract an additional 22 per cent cess, taking the total tax on a vehicle up to 50 per cent. Second, the government’s early attempts at fuel price reform have narrowed the differential between diesel and petrol prices from Rs 16.78 a litre in April 2014 (for Delhi, the country’s largest car market) to Rs 7.1 per litre. The upshot has been a shrinking share of diesel car sales from 48 per cent to about 20 per cent today. Third, three months ago, a committee under the Ministry of Petroleum and Natural Gas had recommended a ban on diesel four-wheelers in cities with a population of more than one million. There is no indication yet that the government has accepted this recommendation, but it aligns with its policy thrust. Indeed, several vehicle majors in India read the tea leaves soon after the Bharat Stage-VI emission norms were mandated in April 2020 and announced that they would stop manufacturing diesel vehicles, including India’s largest car maker Maruti, Hyundai and Honda. 

India is the world’s third-largest emitter of carbon dioxide and the road sector accounts for the bulk of those emissions. Diesel engines emit more fine particles and air pollutants than petrol variants, though research & development efforts have been made to reduce these harmful emissions. So the broader step to encourage the transport sector — including freight — to move away from fossil fuels to biofuels or electric options (which are admittedly still limited for trucks) must be considered unexceptionable. Accelerating this trend may require reorienting electric-vehicle subsidies to consumers rather than manufacturers and recalibrating green energy policies to reduce the paradoxical dependence on thermal energy to power the green-energy revolution. In short, India needs a more coordinated and universal energy policy to make the kind of meaningful transition to clean transport solutions for which Mr Gadkari manifestly hopes.