Diesel tax will hit fresh investments: SIAM

Company heads of several automotive companies have cautioned the government over cuts on planned investments over flip-flops on the diesel issue, a senior executive of the premier auto body, SIAM, said on Thursday.

Pawan Goenka, president (automotive and farm equipment sector), Mahindra & Mahindra, said, "Yesterday, we had people from General Motors and Ford with us in our pre-meeting and also in the meeting with the industry and their view was that they have invested heavily in the diesel engine plant and would find it very difficult to go back to their (company) boards and say why did this diesel demand didn't happen and this will jeopardise their future investment in diesel technology."

The government has asked SIAM members, to provide fresh data which will provide an indication about the diesel vehicle demand in the country.

"Now, everybody is investing in diesel engine plant and therefore all of these plans will get jeopardised.

This kind of sudden change in policy has an impact on the long-term investment decisions of auto companies", added Goenka.

Mahindra & Mahindra, the utility vehicle market leader whose 99 per cent sales come from diesel driven vehicles, is preparing to invest Rs 4,000 crore (Rs 40 billion) on a new plant. Besides, like most other the companies M&M too is working on development of newer diesel powered engines.

"They have asked us to give them some information in about a weeks time which includes backlog

of orders for diesel model, installed capacity of production for diesel models and impact and current scenario of petrol segment.

We have been given a fair chance by the ministry at our meeting to convey our message", added Goenka.

SIAM also cautioned that the growth forecast for this year for auto sales at 11-13 per cent will be missed if the additional tax is imposed.

Nearly every second car sold in the country is powered by a diesel engine with its share having substantially gone up in the last 3-4 years.

From under 20 per cent less than four years ago diesel command a share of 45 per cent presently.

According to SIAM only 6.8 per cent of total diesel consumed in the country is consumed by the automotive sector. Of this 1.6 per cent is consumed by private vehicle owners and the rest by commercial users of private vehicles.

"Trying to impose a tax on diesel is not the way to solve the problem that will not necessarily move demand back to petrol from diesel but it will kill demand.

"In fact not all diesel vehicles are substitutable with a petrol model. Just by making diesel less attractive you are not making petrol more attractive. We communicated this to the government officials", added Goenka.

SIAM said the industry has seen a 4-6 per cent hike in the price of vehicles in the past three months and any hike from hereon especially on diesel vehicles will have an adverse impact on growth as this is the only segment which is posting an increase as the petrol segment has shown a degrowth in the last few months.