May 29, 2012: The Society of Indian Automobile Manufacturers (SIAM) has asked the Union government to reduce the price differential between petrol and diesel fuels at the earliest to offset the huge imbalance in the car demand pattern after the recent petrol price hike.

While tax reduction on petrol can lower petrol prices, a moderate hike in the administered price of diesel by Rs 2 to 4 can contribute significantly in narrowing the price differential between the two fuels without stoking long-term inflation as well as garner a higher revenue for the Centre. Consumers will also benefit due to the certainty in fuel pricing enabling realistic decisions on car purchases.

SIAM has also called for positive policy measures by the government to make petrol cars more attractive, viable and acceptable to the consumers rather than penalising diesel cars with still higher taxes. This would make them commercially unviable, stifle car sales in the country and in turn impact revenues to the central exchequer.

“Such a move will only kill the golden goose which would contribute more than Rs 20,000 crore of excise revenue to the exchequer every year,” cautions S Sandilya, president of SIAM.

He says that the Annual Budget 2012-13 already hiked excise duties by 2 to 5 percent on all vehicles including diesel cars with the maximum hike of 5 percent being imposed on over 1500cc-engined cars. This has raised the total excise burden on midsized and large cars to 27 percent.

Since diesel cars are costlier by upto Rs 1 lakh, they contribute a higher revenue to the government compared to petrol cars. Therefore, any further hike in excise duty on diesel cars is not required, says SIAM.

“This is the highest excise duty on any state-of-the-art, manufactured engineering product,” Sandilya concludes.