Polluting diesel is a farce; it’s the subsidy that is the real problem



It’s that time of the year again when the mornings are smoggy, the sun sleepy, the atmosphere leaden and the gas stove busy. Alongside, there is also a rise in the number of ailments none less than those with respiratory problems.

And as the sun takes its customary vacation from providing us with the warmth, there is the sudden realisation that the air in the city is “getting awfully polluted” with each passing year. And the knives are out on cars in general because there are so many of them on the roads, and the diesel ones in particular, because everybody apparently is buying only diesel and emitting the infamous black smoke from their pipes.

So the apex court of our country in its own wisdom mulled this week whether making diesel cars expensive by another 25% in the city would not be a bad idea. It reasoned that cars are primarily responsible for the fact that you cannot breathe in fresh air in the mornings these days and diesel, being the perennial bad boy, refuses to go clean. And the increased prices would deter the 2.5 million plus who trudge to the car showrooms each year, from buying these stupid, polluted, black, evil, diesel cars.

The automotive industry battling a slowdown this year of the most stubborn types, is not amused. The usual refrain is one of “there we go again.” As it stands, diesel has been a favourite whipping boy from a cross section of attackers.

The biggest critic of course, is the oil ministry. And understandably so. The high subsidy on every litre of diesel that is sold in India is a matter of concern to it, as each week it plays havoc with its balance sheet. Further the exponential increase in sale of diesel cars in the country as evident for the last year or so, plays itself out in the increase in demand for the fuel as well.

Sample this. India’s largest car manufacturer, Maruti Suzuki a predominantly petrol car maker till last year, has seen a 42% growth in demand for diesel cars in the first half of this fiscal year. Demand for its petrol cars during the same period declined by 17%. Further, around 90% of its outstanding 125,000 unit backlog is for diesel cars.

The impact of this on the pattern of consumption of fuel has been immediate. The rate of growth in sale of diesel fuel in the country in the same period was over 10%. That of petrol was only 4%. But while the prices of petrol have been decontrolled, diesel still gets a hefty subsidy. On an average government incurs a loss of around Rs 10 for every litre of diesel sold in the country.

Its other big critic has been the environment lobby. The image of age old trucks trudging along our morose highways bellowing gusts of black smoke is still etched in our psyche. As is the despicable performance of the old diesel run cars offered a decade ago. Armed with the increase in demand for diesel cars as exemplified above, it is easy to make it a scapegoat.

A scapegoat? Really? Well…almost. To criticise modern diesel cars like the Swift, i20, Verna, Fortuner or BMW X1 as big polluters and more than their petrol brethren, would be ignorance at its best.

Vis a vis petrol, new age diesel engines are more sophisticated and offer better fuel consumption of upto 25%. Under the same conditions, the Swift diesel offers 22.9 kmpl while its petrol variant runs around at 18.6kmpl–23% less.

In terms of carbon emissions, the petrol emits 116 gram per kilometer. The diesel version does only 109 gm per kilometer. All this while it offers better fuel economy. Hence you get more bang for your buck while being less damaging to the environment. So the assumption that because its diesel it is harmful to the environment, does not hold much water. Anymore.

What does make sense however, is that the price of diesel is not governed by the market but is subsidised. That subsidy need not be exploited by those who can cough up more money. As it stands, diesel is only offered on cars that cost over Rs 4 lakh. This set of customers is not needy and does not…ought not….be subsidised.

The ideal solution then, would be to free the price of diesel. But it also happens to be the fuel that runs the commercial vehicles –our trucks, buses, MUVs and LCVs– that ferry both foodgrains, fruits and vegetables as well as people around the country. The assumption is that if you free the price of diesel, cost of everything from your flour to flower goes up.

There is a school of thought that says that the impact of diesel prices going up on every damn thing would actually be negligible. But that calls for another blog post.

For now, it is imperative that the subsidy should not go to somebody being driven around in a BMW but if at all, to somebody buying the Rs 12 ticket to cover a 22 kilometer distance in a public transport bus. In the hinterland of mother India.

Doing that itself would not be easy. There are way too many loopholes in the system in India and people would wily nilly exploit that. Further, once you do evolve such a system it would only ensure that diesel fuel price is never decontrolled. Which would be retrograde as well.

And if you do manage to do that (decontrol the price of diesel) say 10 years from now, content with the constant revenue stream from taxing the fuel (that would be applied, say immediately) all this while, there will not be any rethinking of the tax once it is actually decontrolled.

So what are we talking about then? Taxing cars more in the name of pollution when they are not exactly polluting? Or taxing them more in the name of the subsidy, which the government is not saying out loud? And not brave enough to admit and encounter?

I would rather prefer the latter. And the automotive industry would berate me. But let’s tax diesel cars for surviving on subsidised diesel fuel. Let’s not get into the ageless debate on why it cannot be decontrolled because of its impact on inflation and that we are a welfare society. This will necessitate a call for an open debate. Let’s simply have that rather than not having anything at all.

Let’s call a spade a spade. It’s about time. Unless we wait for the next winters and the smog again. That would be tragic.

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