Page 232 - DECO303_INDIAN_ECONOMY_ENGLISH

Unit 13: Small Scale Industrial Sector in India

Notes

Case Study Impact of Excise on Diesel Cars

he diesel version of the Nano, scheduled to debut in the second half of 2010-11,
could be the worst hit if the Centre accepts the Kirit Parikh panel’s recommendation
Tof imposing a flat ` 80,000 excise levy on all diesel cars. Though, there is still no
official word on the possible price tag of the car, the top-end could cost around ` 2.7 lakh
(on-road, in Mumbai) given that its petrol sibling is nearly ` 2 lakh.

Should the ` 80,000 levy be imposed, the 800cc Nano diesel will be closer to ` 3.5 lakh
which will put it on at par with the basic Hyundai Santro (petrol) or the present Indica V2
(diesel). And to think that, Tata Motors wanted to position the Nano as “the people’s car”.
Current Levy Structure
The present excise duty for small cars (those under four metres with maximum engine
capacities of 1.2 litres for petrol and 1.5 litres for diesel) is 8 per cent. However, the
imposition of the additional ` 80,000 would mean a net excise levy of nearly 35 per cent for
the diesel Nano which experts say “borders on the absurd”.
This would be equally true for all compact diesels, though in terms of percentage, the levy
would be gradually lower with higher price tags. “Simply put, the ` 80,000 excise levy
would make a mockery of the present eight and 20 per cent classifications on small and
large cars,” sources said.

Typically, diesel cars such as the Indica, Logan, Indigo and the Innova-multipurpose vehicle,
are used as taxis, but this user segment is reimbursed by the excise levy which means it
would not be passed on to the end-user.
It is also strange why cars are always the ones to bear the cross for any muddle concerning
fuel prices. Last fiscal year saw the worst crisis in recent times when crude prices went out
of control and the Centre promptly slapped an additional ` 15,000-20,000 levy on all cars
with engine capacities of 1,500cc-2,000cc. The move, intended to penalise fuel guzzlers,
largely impacted diesel utility vehicles. Naturally, there was a lot of heartburn because
the Centre was not being seen as too proactive in taking hard decisions on raising prices
instead.
Subject of Controversy
In fact, diesel vehicles have always been the subject of controversy for years now. In the
early nineties, multi-utility vehicles, with a certain seating capacity, were given sops on
excise duty which effectively sealed the fate of the petrol-driven Maruti Gypsy.

The Centre then introduced another norm in 1994-95 where only those MUVs weighing
over 2,700 kg could be eligible for the lower duty. “It did not take too long for manufacturers
to add a whole lot of steel in their vehicles so that they paid less,” sources recalled.
Sanity in the excise duty structure soon prevailed, but the reluctance to hike auto fuel
prices resulted in the automobile sector taking the rap instead, the latest being the Kirit
Parikh panel’s salvo on the ` 80,000 levy.
There is no question that the subsidy on diesel is the root cause of this problem. It is
unlikely that the Centre will tamper with its price because its fall-out on freight rates
would stoke inflation levels which are already hurting consumers.
Contd...

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