Auto stocks react on government’s suggestion to impose 10% tax on diesel engines

Auto stocks were trading lower on the back of Union Minister Nitin Gadkari’s announcement, proposing to levy an additional 10% GST tax on vehicles, but then recovered gains, upon the minister's clarification. Speaking at the 63rd SIAM convention, the Minister for Roads, Transport and Highways stated that he would ask the FM to impose this 10% tax, in order to wean away from fossil fuels. 

The minister later clarified that there was no such proposal of levying additional tax on diesel vehicles and it was under active consideration.  

Ashok Leyland touched 176.90 to recover to 180.20 apiece but was still down 2.49%. Tata Motors was down 615.60 to recover to 622 apiece. The stock was down 2%. M&M was down 1513 to recover to 1557.45 apiece. The stock was down 1.64%. 

The minister also emphasised on the growing focus on biofuels and alternative fuels, noting that this is a top priority as India has joined the Global Biofuels Alliance during the G20 Summit.

The development should be seen in the context of data available with the Ministry of Petroleum, suggesting that around 81% of all diesel consumed in the country is used in the transport sector as of 2021, which is a rise from 70% in 2013. As per JATO, a data analyst firm, the percentage of diesel-powered cars has gone down from 47.91% in 2014 to 19.07% in 2022. 

In addition to Gadkari's remarks, a panel established by the Ministry of Petroleum and Natural Gas suggested in May this year that by 2027, four-wheel-drive vehicles with diesel engines be banned from cities with a population of one million or more and that instead, electric and gas-powered vehicles be used.

In addition, the report stated that additional diesel city buses should not be permitted in urban areas going forward, paving the way for the eventual transition of urban public transport in roughly ten years.