With the Union budget a few days away, motown is waiting for the government’s decision on diesel tax. Ford India, which has a product mix of 75% diesel vehicles, thinks the move to impose a tax on diesel cars is retrograde. Ford has announced a $72 million investment to create fresh diesel capacity at its Chennai plant. Michael Boneham, president & MD, Ford India, speaks to TOI about diesel tax and its implications. Excerpts:
What do you think about the proposed government move to impose tax on diesel cars?
Taxing diesel cars is not the right step. I don’t think the industry will improve by moving from diesel to petrol because petrol prices continue to rise and subsidy on diesel continues. The price gap on fuel will remain. So, there is no incentive for people to go and buy a petrol car. Instead, a new tax will dampen the whole industry. That said, it depends on how the government approaches the tax issue. The last thing the government wants is to dampen FDI inflows. On the one hand, you have the government pushing for manufacturing contribution to GDP of 25% by 2020, on the other hand, you can’t be punishing a major sector by taxing a derivative. Many of us have invested huge amounts to give the customer what he wants. We can’t be crossing our fingers thinking every time a budget comes in, what will be its impact on policy. We need stability in policy, and transparency in policy.
Why should government give subsidized fuel for cars?
Diesel used in passenger vehicles is just 1% of the total diesel consumption in India. If people do shift to petrol, it is a bigger problem as petrol is less efficient. Diesel is 45% to 50% more efficient per barrel of crude oil, than petrol. Last thing we want to see is the government spending more money to bring barrels of oil. They (the government) need to think about the impact a diesel vehicle tax may have.
So, what is the solution?
The fundamental issue on diesel is subsidy. The government has to look at the subsidy and see if there can be some sensible way to manage it. The subsidy itself is only Rs 6 per litre of diesel. I am not an expert to tell the government what to do. What seems more sensible is to bring about very small incremental moves to remove the subsidy on diesel over time, so that it absolutely minimizes the impact. At SIAM we are saying that a 75 paise increase in the price of diesel per litre will help raise the same revenues as a diesel tax of Rs 80,000 on a vehicle.
What if oil prices flare up again in the next budget? Are you going to stub the auto industry? Is that the answer?
Eventually, they have to face up to the real issue, which is subsidy. You can’t push the issue, you need to deal with it. It is a complex issue for the government. You have to protect farmers and agricultural sector. There are some clever people in government and they need to see how to deal with the situation. Small car buyers are not the wealthy guys like those who buy Audi, BMW and Mercedes. This is the rising middle class, which needs to be encouraged.