Manufacturers that mainly sell diesel cars like Mahindra & Mahindra, Tata Motors, Toyota, Mercedes, BMW and Volkswagen anticipate a significant fall in sales if the government accepts the Parikh committee's recommendation of a flat tax of Rs 80,000 on diesel cars, because of a widening cost differential with petrol variants.
Diesel cars account for 35 per cent of the 1.5 million annual car sales in India and their sales are growing at 20 per cent, compared to an overall market growth of around 12 per cent.
The Parikh committee submitted its report on auto and cooking fuel prices on Wednesday. It recommended, among other things, a rise in the price of both petrol and diesel.
The recommendation had been made largely to discourage sales of diesel cars and utility vehicles, to reduce demand for the heavily subsidised fuel which has put a huge fiscal burden on the government. The report will be discussed by the Cabinet next week.
Although diesel as a fuel is cheaper than petrol, diesel cars tend to be Rs 70,000 to Rs 1 lakh (Rs 100,000) more expensive than the petrol variants. The flat tax is expected, however, to raise prices of diesel cars further and cancel out the lower running costs that accrue from lower fuel costs.
"The hike will have a huge impact on our sales, as well as of the industry," admits Bangalore-based Toyota Kirloskar Motors', deputy managing director (sales and marketing), Sandeep Singh. "Sales of the Innova, Corolla and Camry will suffer due to the tax," he added. Diesel cars account for 60 per cent of Toyota's sales.
German car maker Volkswagen, which derives half its sales from diesel cars, also admits that the move could be disastrous. "Decisions are taken by companies on the basis of policies of the government and if it introduces such a change, then the investment in development of technology is a total waste. The gap between diesel and petrol will be so huge that it will become unviable for buyers to look at diesel options," says Neeraj Garg, director, Volkswagen Passenger Cars India Ltd.
Mahindra & Mahindra, India's largest manufacturer of sports utility and multi-utility vehicles, will be the hardest hit, since all its models like the Xylo, Scorpio and Bolero are diesel variants. M&M spokesman Pawan Goenka was unavailable for comment.
