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 Budge t, 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.
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 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. "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.
The government has said it has taken an in-principle decision to link diesel prices with market rates, However, there is no proposal at present to fully deregulate cooking gas price. Minister of State for Finance, Namo Narain Meena said this in a written reply to the Rajya Sabha Tuesday .
While petrol prices are market-linked, the government fixes the rates of LPG, kerosene and diesel, which results in a large budgetary expenditure on subsidies. Mr. Meena said, the government continues to fix the price of diesel in order to shield the common man from the impact of rising crude oil prices and the resultant inflation.
Finance Minister Pranab Mukherjee later told reporters, that the in-principle decision to deregulate the price of diesel was taken in June last year.