News of Excise Duty hike on diesel cars resurfaces again

     The news of hiking the Excise Duty on diesel cars has surfaced again after a steep hike of over Rs. 5 on petrol. The finance ministry is looking at the issue after the petroleum ministry insisted on the hike to discourse people from using highly subsidised diesel. The oil ministry suggests that the additional amount collected from the excise hike can be utilised to compensate the loss that fuel retailers suffer on the sale of diesel at government controlled rates.


     The huge gap between petrol (Rs. 80/liter) and diesel (Rs. 45/liter) is prompting people to go for diesel cars. In fact last month the sales of Swift (80% of which sold are diesel) surpassed the Alto (which is a petrol vehicle) inspite of the former’s price being double that of the later.


     The Govt. is providing subsidy of Rs. 15.35 per liter on the diesel. Diesel in our country is perceived mainly as a fuel for mass transportation (goods & people) and agriculture. Any increase in diesel prices will automatically raise the already raised inflation. There has been argument for a long time that, rich should not get subsidised fuel and the subsidised fuel should only be available to poor people (aam admi). But the fact is that, the main loss to the Government is the multiple levels of taxes state government charges on the fuel.


     If the excise duty hike does take place for diesel cars, the India growth story in the Automobile segment will be hit significantly.
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