The Telegraph
Thursday , November 29 , 2012
Since 1st March, 1999
CIMA Gallary


The former president of the United States of America, the late Ronald Reagan, once said that the best way to kill something was to tax it. The Supreme Court’s suggestion that the government tax diesel-fuelled cars in the national capital region to bring down pollution has resulted in a number of people jumping to the defence of diesel cars and raised the intensity of the diesel versus petrol debate. Some experts have also suggested differential and higher annual taxes on diesel cars. Two sets of issues are in play: those surrounding individual consumer choice and those reflecting societal concerns. Most individuals want greater fuel efficiency as measured by mileage per litre of fuel, and are willing to pay higher prices. Of the 1.8 million cars sold each year in India — roughly 15 per cent use diesel fuel — the significant majority are in the Rs 5-10 lakh range; not surprisingly, most diesel cars fit into this bracket. Carmakers have launched more than 40 new models of diesel-fuelled cars, or plan to; car buyers expect the price differential between petrol and diesel fuel to persist for a very long time, in spite of the additional 15 per cent they pay for diesel variants. Insurance and maintenance costs for diesel cars are also marginally higher.

Society at large perceives the demand for diesel cars as driven by the subsidy on diesel. In almost all other countries, diesel is more expensive than petrol. The subsidy bill on diesel is expected to be Rs 1 trillion (or Rs 1 lakh crore), a heavy burden on a fiscally strapped government that translates into higher taxes for the rest of the people. But the proposed green taxes — whether annual or one-time — will not reduce the subsidy bill in any meaningful way, so the penalty will be borne by just a small segment of car buyers. Others have pointed to environmental costs of higher pollution in cities like New Delhi as reasons for such taxes. Many studies have shown that diesel produces fewer carbon emissions, but more nitrous oxide than petrol cars, which causes a multitude of respiratory problems for people. But few believe that a green tax on diesel will be effective in lowering health risks. This much is clear: a tax on diesel cars cannot be a silver bullet to address very different sets of concerns. Raising diesel prices has political and economic ripple effects that go beyond just automobiles. The government could subsidize alternatives to fossil fuels instead, like electric cars: that could do the trick.