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Auto companies worry over levy on diesel vehicles: Budget 2011
February, 19th 2011

Automobile companies are keeping their fingers crossed over the possibility of the government introducing differential taxation for diesel vehicles in this Budget, as recommended by the Kirit Parikh Committee report.

Particularly concerned are MNCs that have invested heavily in building diesel engine plants in India and say higher taxes or levies on diesel vehicles would hit demand and could impact future investment plans in India.

Take Ford India, which pumped in a substantial part of its overall $500 million investment in India into its 250,000-unit diesel engine plant. The company is all set to 'grow' its Indian capacity for both domestic sales and exports in the next four months. But that decision could take a hit if the government slaps differential taxes on diesel vehicles.

"A decision like that could potentially impact future investment for both domestic and export capacity," said Ford India MD Michael Boneham.

Others like Toyota India, which has just rolled out its Etios small car in India, are "not making any investments on diesel just yet," said Sandeep Singh, deputy MD, Toyota India. "We have plans but we have not taken a firm decision yet," he added.

The Kirit Parikh Committee's recommendations-which suggested an additional excise duty of around Rs 80,000 on diesel cars to neutralize the fuel price differential-was greeted with howls of protest from the automobile industry when first announced more than a year ago. Given that many of the best-selling small cars today are diesel, the industry is antsy that a diesel tax will derail demand. "Nearly every company have made or are planning huge investments in diesel capacity," said Singh. "If the price of the vehicle goes up, it will impact sales at a time when companies are squeezed under rising input costs."

Rajesh Jejurikar, COO, automotive division, M&M , feels diesel tax, if it comes, will be a double whammy for his range which already attracts an additional surcharge. "We already pay a surcharge of Rs 15,000 because our engines are bigger than 2-litre capacity," he said.

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