You must be aware of the widening difference between petrol and diesel prices in the city these days. And with a difference of more than Rs 30, you may have been induced to exchange your old petrol car for a diesel one or simply buy a new diesel variant car. Some of the other reasons why you would opt for diesel variants are; diesel cars are more fuel efficient than petrol and offer 30% more mileage. Besides, diesel price has been frozen in the country for almost a year due to political compulsions that has made it a lot cheaper than petrol.

Helped by this increasing price differentiation, sales of diesel cars have zoomed to over 55% of the total 1.63 lakh units sold in May this year, up from mere 38% last year. However, before you buy that dream car (diesel variant); you need to be aware of the repercussions of your decision.

The Government in order to keep a check on the dieselisation (increasingly use of diesel fuel in vehicles as opposed to petrol or other fuels), caused due to the widening gap between petrol and diesel prices, is now planning to impose additional levies of Rs 1,70,000 on small diesel cars and Rs 2,55,000 on medium and large diesel vehicles like sedans and SUVs. The additional revenue thus raised, will be utilised to partly offset the subsidy cost of the Government towards Oil Marketing Companies (OMCs).

Apart from the additional levy of duty as mentioned above, you also need to be aware that the motor insurance premium on your diesel car is higher than a petrol variant car. Typically, the difference in the own-damage premium between a petrol variant car and a car running on other fuel types, including diesel, LPG and CNG is approximately 10% - 20%. However, the actual difference can be big, depending on the make and age of the vehicle. There is no standard differential and the actual premium varies from model to model and insurer to insurer.

Our view:

In our view, the Government should decontrol the prices of diesel, i.e., it should be market determined from the present controlled prices in order to reduce the under recoveries of OMCs and the subsequent reduction in the subsidy burden of the Government (which in turn help in reducing the burden on fiscal deficit). Raising taxes on diesel cars would be a dampener for the auto industry, as buyers would refrain from buying the diesel variants (which are already expensive when compared to the petrol variants).

We think, that the State Governments should try and reduce the tax on fuels like diesel and petrol in order to minimise the effect of rise in market prices on the consumer. Just by levying additional duty would not solve the problem of subsidy burden but instead would cause a slowdown in the auto industry, one of the key drivers of growth in the Indian economy. This in turn would affect the overall economy which is already showing signs of slowdown.

Will you prefer a hike in diesel fuel prices or a hike in diesel cars? Let us know your comments or post them on our Facebook page / Twitter page.

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amgaitonde@hotmail.com Jun 17, 2012 By imposing additional levies on diesel cars to partially offset the subsidy does it mean that the buyer will continue to enjoy the difference between price of petrol and diesel during the entire economic life of the vehicle as the buyer has paid for the price difference. How will this be monitored. Also does it mean that government by implication had decided to retain the price difference for perpetuity.

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