Additional taxes on diesel cars and utility vehicles will not help bring down petroleum subsidy significantly and the government will rather have to hike diesel prices to lessen the burden,according to market research firm Crisil.
“To bring about a sustainable reduction in the subsidy burden,the government will have to hike diesel prices,and ensure that in future also,diesel prices move in accordance with crude oil prices,” Crisil Research said in a report.
In the 2012-13 Union Budget,the government had set stringent targets to contain its subsidy bill,of which petroleum subsidies form a third,it said.
The options being considered include imposition of a one-time tax on new diesel cars and utility vehicles (UVs) sold or an annual usage-based levy on existing diesel cars and UVs,which are aimed at reducing the preference for these vehicles and thereby bringing down diesel consumption.
“…These options will not bring down the subsidy significantly or will be difficult to implement. Furthermore,diesel cars and UVs account for just over a tenth of the diesel consumption,” the report added.
The report further pointed out that other vehicles like trucks and buses,which consume more diesel,remain untaxed.
“Of the total diesel consumed in 2011-12,cars and UVs used up only 12 per cent,a third of what trucks and buses consumed,” it said.
The research firm said it had derived the share of diesel used by cars and UVs,based on an estimated population of 3.6 million diesel cars in India as of March 2012.
This formed about 23 per cent of the total population of cars and utility vehicles. Of this,it has been estimated that 47 per cent of the cars are for personal use and the remaining for commercial use.
The report said the recent Rs 5-plus hike in petrol prices has again turned the spotlight on petroleum subsidy,which accounted for nearly a third of the Rs 2,20,000 crore
subsidy bill in 2011-12.
It pointed out that in 2011-12 petroleum subsidies shot up by almost 80 per cent to Rs 6,80,00 crore as crude oil prices rose and the rupee weakened.
In the Budget 2012-13,the government had targeted to contain its petroleum subsidy bill at Rs 43,600 crore,about 40 per cent lower than in 2011-12,it added.
“Within petroleum subsidies,diesel alone takes up about 60 per cent. Under-recoveries on diesel are at an all-time high of Rs 14 per litre at current diesel prices. Thus,hiking petrol prices alone would not make any difference to the petroleum subsidy burden of the government,” it said.
Calling for a hike in diesel prices,the report said: “To contain under-recoveries on diesel at last year’s level of Rs 9 per litre,the government would need to hike diesel prices by at least 10-15 per cent.”
Increasing diesel fuel prices by 10-15 per cent would reduce petroleum subsidies by about 25 per cent in 2012-13,and also curb the rising share of diesel in petroleum subsidies,Crisil said,however,adding such a hike in diesel prices would also stoke inflation.
Stating that deregulating diesel prices is the only long-term solution to cut subsidy burden,the Crisil report said globally petrol and diesel prices do not vary much.
In most countries within the EU and in the US,diesel and petrol prices are similar ¿ the difference between the two is not more than 15 per cent.
By contrast,in India today,petrol prices are close to 2 times higher than diesel,reflecting both higher subsidies and higher taxes on petrol,the report said.
“…biting the deregulation bullet and ensuring that diesel prices moves in line with crude oil prices would bring about a sustainable reduction in the subsidy burden,which will also provide the government funds for other development activities,” it added.
Discouraging diesel consumption by imposing additional taxes on private and luxury diesel vehicles would only minimally cut down petroleum subsidies,the report said.