The Telegraph
Sunday , December 30 , 2012
Since 1st March, 1999
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Auto makers baulk at fuel rate gap

New Delhi, Dec. 29: The auto industry wants the price difference between diesel and petrol to go even as the government is thinking of increasing diesel prices by Rs 10 per litre over a period of next 10 months.

“Though the proposed price hike of diesel is quite steep, Siam would really support the rationalising of price rise,” said the Society of Indian Automobile Manufacturers (Siam), the auto industry lobby group.

A price parity between the two fuels is also expected to boost demand in a slow automobile market as potential car buyers had put off buying decisions in the wake of high petrol prices and increased interest rates.

“While petrol prices are high, for some buyers moving to a diesel vehicle is also not an option as in a high interest rate regime a diesel vehicle which costs a few lakhs more than its petrol version is not an economical choice,” said an executive in the industry.

Prime Minister Manmohan Singh has hinted at a Rs 10-per-litre increase in diesel prices over a 10-month period if a proposal being considered by the petroleum ministry is accepted.

At present, the gap between petrol and diesel is around Rs 20 per litre. If the government does go ahead with the increase in diesel prices, that gap would further reduce to around Rs 10 per litre — negligible given the discounts and other benefits that are currently pushing petrol car sales.

In September, the government increased diesel price by Rs 5 to reduce its subsidy burden, which has been fueling the high fiscal deficit.

The demand for diesel cars started to slide following the Rs 5 per litre increase. Car makers with both petrol and diesel variants of the same model now say the diesel-petrol sales ratio is down to 80:20 from 85:15 earlier.

“It may affect the sales of vehicles in the short term but the elimination of pri e distortion will help the industry and economy in the long run,” said Siam.

Industry players said diesel-driven passenger vehicles such as cars, sport utility vehicles and multi-purpose vehicles, account for 40-47 per cent of the domestic market today. The share of petrol-powered cars has been on the decline ever since the fuel was deregulated by the government in 2010.