If you’ve found yourself here after having sifted through numerous sensationalized reports online that say ‘Diesel Cars To Become Dearer By 2.55 Lakhs!’ or that you ought to ‘Be prepared to increase your budget by 2.55 lakh rupees!’ take a moment and breathe.
Oil Minister S Jaipal Reddy has written to Finance Minister Pranab Mukherjee demanding a hike in the price of diesel cars. This is only a proposal, and Heavy Industries Minister Praful Patel has already opposed the Oil Minister’s proposal, while CNBC-TV18 reports that their sources in the Finance Ministry say they aren’t in favour of the proposal either. The Oil Ministry cannot impose higher excise duty on diesel cars, if the increase in prices do occur you’ll have the Finance Minister to thank for it.
The ‘scientific’ calculations that have helped the Oil Minister arrive at these magic numbers are pretty simple. Considering a mileage of 18 kpl for small diesel cars and 12 kpl for medium-sized cars, the benefit extended to these cars works out to Rs 1.70 lakh for a small diesel car and Rs 2.55 lakh for the medium sized car. The revenue that the Government will get from a hike in excise duty will be only Rs 5,000 crore while the subsidy on diesel leaves the Government poorer by Rs 100,000 crore at the current diesel subsidy of Rs 12.53 per litre.
“Countering the effect of one distortion by creating another distortion is neither good economics nor good politics,” said S Sandilya, President, SIAM this week before meeting with the Government on Wednesday. “The only meaningful way to reduce price differential between petrol and diesel is to offset the huge imbalance that has changed the demand pattern in the Indian passenger car market” he added today.