The Government of India has altogether canceled its plans of taxing diesel vehicles higher as that would cause a severe negative effect on the Indian car industry. Instead, the Government is planning to gradually deregulate diesel fuel by reducing subsidies. This won’t be done in a single step but gradually over the fiscal year 2012-13, as the sudden rise in diesel prices will result in heavy opposition from the commercial segment, which consumes a major chunk of diesel fuel. However the gradual deregulation will too see an opposition from diesel users but the Government claims they have no option but to execute it, as it is burdened by heavy fiscal deficit.
All this talk of diesel price deregulation is quite an eye wash. The Government on its part does not intervene when the State Government puts heavy taxes on the fuel, which forms a significant part of the price of the fuel. This taxation at the State level obviously does not go to the oil companies, which have been crying sour for quite some time now about mounting losses. Also it is a very small percentage of private car owners which actually use diesel cars, while the rest of the diesel users are either industries or the commercial sector. We are not against diesel price deregulation but has the Government done anything to reduce the cost of transportation for the common man at large? Excise duty hike has been done but has the infrastructure improved? We still travel on roads which are filled with potholes and the public transport system is still in shambles, increasing the importance of public mobility.
The diesel price deregulation will suddenly start making diesel cars unfavorable, atleast economically. For starters they already cost 15-20% more to buy and with diesel fuel price on par with petrol, why would anyone buy a diesel car (from the economic perspective). Diesel cars are more fun to drive (due to the higher torque they produce) and return higher mileage too but the break even point will now be much further apart.