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The car industry

Smog and mirrors


Booming diesel car sales, propelled by big sops, pose serious public health hazards, besides being unfair on other fuel users. Time to remove these sops and increase taxes, argues Anumita Roychowdhury.

The current buzz on proposals for an additional tax or cess on diesel cars has clearly ruffled many a feather in the country's auto industry. Such a tax hike would spoil the party after all, as so many growth dreams appear to hinge on the sops that subsidise diesel prices in India. The figures speak for themselves: despite recession blues, diesel cars clocked 34 per cent growth last year. But the cost of supporting their profits, though crippling, is being generously borne by the government and oil companies. What's more, public health costs do not even figure in diesel's balance sheet.

Indeed, why should two mainstream fuels, petrol and diesel, bear an unequal tax burden for the same usage - the personal car? Under-priced and under-taxed diesel, meant for freight and agriculture, is inciting its greater use in personal cars. Why, even a two-wheeler owner pays more taxes per litre of fuel (usually petrol) than someone who drives an SUV, who in turn reaps unfair benefits.

Yet many glibly argue that decontrol of diesel fuel prices is the ultimate solution to remove this incentive for diesel cars. No one disagrees. But no one expects it to happen either. The country, therefore, needs an interim solution, in the upcoming Union budget ideally, to stop increasing misuse of this fuel for personal mobility.

The car industry has also confused the policy discussion with claims that cars use less than 1 per cent of the country's diesel. And so taxing it at high rates would not help. This conveniently ignores the explosive growth seen in diesel car sales - up from just 4 per cent of new car sales in 2000 to 40 per cent now. It is a trend that will continue to peak.

Doing the math on what it costs to support the diesel car for personal mobility is even more damning. With each litre of diesel replaced with petrol, excise revenue drops seven times. Diesel guzzled by new diesel cars sold in 2010-11 has cost the central government an estimated Rs 800 crore in fuel excise losses. From the existing fleet of all-diesel cars and SUVs, the loss is staggering: close to Rs 3000 crore. This excise loss will compound with high annual sales, while losses from other central and state taxes are not even accounted for. At every stage of price buildup - pre-tax adjustments, dealer commission, state taxes - the fuel price gap only grows wider.

It is also an inconvenient truth that conventional diesel is a serious public health threat. Diesel particulates have been branded as probable human carcinogens by various agencies, including WHO. It is clearly blamed for rising incidence of lung cancer. Plus, diesel cars are also legally allowed to emit more particulate matter and nitrogen oxides than other vehicles in India, largely why levels of both these pollutants are rising rapidly in all our cities.

Besides, when the auto industry makes claims of modern diesel engines, and flaunts diesel car growth in Europe, it omits mentioning that health concerns have driven governments in that continent, and in the US, to leapfrog to 'clean diesel'. Diesel is considered environmentally acceptable when advanced emissions control systems are used for diesel fuel with 10 ppm (parts per million) sulphur content. But in India, diesel sulphur level is as high as 350 ppm. Only a few cities have 50 ppm sulphur diesel. And diesel vehicle technology in India is more than a decade behind Europe. It is startling that the government's entire 12th Plan discussion has completely ignored the investments required to produce clean diesel. By the end of the 12th Plan, so-called 'modern' diesel tech in India will be 17 years behind Europe. Who are we fooling?

We need clean diesel not just for cars but also for captive users: trucks and buses. During the 12th Plan our refinery capacity will increase 1. 6 times. An additional tax on diesel cars is one way to meet the increased cost of producing clean diesel then.
Cheap diesel could also make us more energy insecure. The diesel car market, by shifting to bigger cars, is plainly undermining the fuel efficiency advantages small cars bring. While the bulk of petrol car sales (87 per cent) are for vehicles below 1200 cc in engine capacity, more than 40 per cent of diesel car sales are for those above 1500 cc. Last year, SUV sales alone witnessed 41 per cent growth.

Moreover, the globalised auto industry meets stringent standards in Europe but resists green measures in India. Even German car makers have opposed tax hikes on diesel cars here. Ironically, in the face of massive civil society campaigns against dirty diesel, Germany was forced to mandate the use of 10 ppm sulphur diesel and particulate filters a long time ago. German activists famously asked whether there should be particulate filters on car exhausts or on people's noses! What about India then?
If the government fails to put the brakes in this budget, investment in diesel car facilities will continue unabated. This would also make industry more resistant to emissions improvement and undermine the negotiating power of the regulator to push for tighter emissions standards. Cheap diesel for cars has to go, for all our sakes.

The writer is executive director - research and advocacy at the New Delhi-based Centre for Science and Environment (CSE).

Reader's opinion (1)

Parikshit BhandekarFeb 12th, 2012 at 11:51 AM

Nice informative article

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