So far, people using swanky and expensive SUVs (Sport Utility Vehicle) for pleasure driving and those who are using buses or trucks for essential services, both are getting equal subsidy on diesel. Passenger cars are the single largest consumers of diesel, as much as 15% of the total diesel consumption in India. To exploit the existing subsidy on diesel, more consumers are turning towards diesel passenger cars. Widening gap between diesel and petrol prices is only fueling this move. At present, diesel cars contribute nearly 40% of the total car sales, as compared to less than 20% a few years back.
Definitely, diesel passenger cars do not deserve any fuel subsidy, as the latter hardly goes to the needy section of the society. Therefore, the government is mulling over various steps to do away with the subsidy enjoyed by diesel car owners. One proposal under consideration is not to sell diesel to passenger car owners at subsidized rates. However, this idea is difficult to implement. In addition, existence of dual pricing in the market would lead to black marketing as well. So what is the way out?
Now, the government is pondering over another proposal which is hiking excise duty on diesel passenger cars. The idea is to generate more revenues from the production of diesel cars which can be passed on to the oil marketing companies. These companies are taking serious hits on their profits on account of high crude oil prices.
In the meanwhile, auto companies are waiting to get a clear picture before deciding future investment to increase their diesel car production. It would be good if the government comes out with a clear policy on this issue soon. However, what we believe is the only way to do away with all this kind of discrepancies such as diesel subsidy for everyone is decontrolling of prices of petroleum products. Time has come that the government shows a strong will in this regard. Decontrolling of the petroleum product prices and rationalization of taxes seem to be the only way to go. Small stitches in the existing policy may not help the whole problem of subsidy issue. And the government would continue to be laden with huge fiscal deficit on account of irrational subsidies.