SIAM president S Sandilya says any incremental increase in excise duty on diesel cars will be a "retrograde step".
The government has been mulling imposing an excise duty burden on diesel cars to avoid hiking diesel prices after its decision to effect a hefty petrol price hike sparked off a national outrage.
Sandilya argues that not only the government stands to lose out in terms of revenue, it will also beat government's objective to give poor farmers diesel at a subsidised price.
"The whole argument of the subsidy going to the farming sector is being blown up beyond a point because of the political pressures. The government step should be to reduce the differential between the petrol and the diesel prices. Increasing diesel prices by Rs 2-4 a liter will give significant revenue to the government and yet tackles the problem of differential pricing," he told CNBC-TV18 in an interview.
Below is an edited transcript of Sandilya's exclusive interview on CNBC-TV18. Also watch the attached video.
Q: We know that you have been constantly lobbying against the differential excise duty on diesel cars. How high do you think the probability is actually of that differential duty coming in?
A: I think the probability is low. The finance ministry is fairly well aware that the diesel consumption by the cars is a very small insignificant percentage of the total diesel consumption in the country. Given that, any incremental duty will be a retrograde step. Let me put you the arguments very clearly. After all the cars, which are using, diesel being such a small percentage of the total diesel consumption, if you increase the duty significantly and the volumes go down you will not only lose the incremental revenue that you want to get, but you will also lose the base revenue that you are getting today out of the number of vehicles that are getting sold in the market.
Therefore, government stands to lose out in terms of revenue. That's the first point. If the objective is not revenue but control diesel consumption, the consumption is miniscule. So, what are you trying to control? Argument of having an incremental duty on diesel vehicles is actually retrograde. However, taking the point: why the subsidy should be given and used by people other than the farmers to whom it is meant -- the farmers constitute about 15-16% of the total diesel consumption out of which there are poor farmers and rich farmers -- whom are you trying to subsidize?
I presume the government's objective is to give the poor farmers diesel at a subsidized price. So just like what they decided for the fertilizers, why can't you give the subsidy directly to the farmers who deserve it? If you talk about the use of diesel by sectors other than the people who deserve subsidy then even the diesel generating sets comes into the picture. The farmers who use very expensive tractors; who can spend lakhs and lakhs of rupees on tractors for whatever they do? They should also be taxed if you look at it from that perspective.
Why do they need subsidy? I think the whole argument of the subsidy going to the farming sector is I think being blown up beyond a point because of the political pressures. The government step should be to reduce the differential between the petrol and the diesel prices. Increasing diesel prices by Rs 2-4 a liter will give significant revenue to the government and yet tackles the problem of differential pricing and therefore really of skews market demand that takes place.
Q: There has been a lot of apprehension with regards to car sales. We have seen sluggish car sales in the month of May as well. Do you think that we could do volume growth of around 10-12% due to the slip and the sluggishness that we have seen?
A: We will give the forecast in the second week of July based on the quarterly total volume projection that we do. First two months, the passenger cars have grown by about 3% as compared to April-May of last year. To that extent, this is a marginal growth, of course, not a significant growth.
We expect the government, with inflation under control, to reduce the interest rates by another half a percentage or one percentage points and if the petrol prices come down, sentiment could turn positive and the sales could start going up. At the moment, we still don’t have data on the diesel and petrol cars. We are trying to collect data. We will get back to you only on that when we have actual data, but today we cannot predict based on this. But I am told by the industry that the demand for diesel cars is going up.
If the government continues to increase differential between diesel and petrol cars, diesel cars being more fuel efficient, people will continue to buy them. But the only answer for not doing that is to reduce the differential between petrol and diesel. The government has to bite the bullet and you are seeing this kind of additional taxes, it is like using ICBM (Intercontinental Ballistic Missile) to kill a mosquito.
Ultimately, if the car’s (sales) volume goes down, where will the duty come from? They will even lose the basic duty. The revenue won’t come to the government. We are trying to solve a problem totally in a wrong approach. We should take a rational approach, get the thing right across and get the logic and rather do thing on a logical basis, political things we have to find and manage like they have managed so many other political issues.
Q: Do you expect car sales volume could go down to as low as low single digits or will it be at least high single digits from the information you have so far?
A: It may go down if as I repeated that the interest rates don’t come down, the petrol prices are still high, the sentiments are not very positive, therefore, there could be a slippage. You also said about 8-12%, so that percentage may not hold good. But exactly what will it be? We will get back to you on that.
But if the current situation continues, if the petrol prices still rule high, there is a negative sentiment, the volumes will go down in the current fiscal year.
Q: Within the auto segment, can you break up for us which segment has higher pressure?
A: In the sales volumes, the heavy commercial vehicles have seen a decline in the demand, whereas in the case of light commercial vehicles the growth in the first two months has been significantly higher. In the case of cars, there has been a decline. The first two months there is a growth of 3%, whereas the utility vehicles the growth has been significant in the first two months. That’s the kind of a broad picture. In the case of two wheelers we find the mopeds and motorcycles have grown but the scooters’ growth in the first two months have been significantly higher. You want a segment wise kind of a breakup, but that’s the kind of a growth that we have seen.
So it is bit of distorted. In the heavy commercial vehicles it is very clearly the GDP growth. I think the GDP growth slowing down has had a significant impact on the heavy commercial vehicles and of course also the mining sector slowdown that had taken place in the last year is having its impact. Lastly I would like to maintain about the buses.
The government having slowed down the money released for the JNNURM (Jawaharlal Nehru National Urban Renewal Mission) scheme is having an impact on the bus demand. In my opinion, if they release the funds promised for JNNURM scheme and ensure that's implemented, we will have a bus demand going up. That's a function of the money being pumped into the market for the state transport undertakings to buy buses for mass transportation.
That's a good solution. The government should very seriously look at mass transportation being pepped up in terms of infrastructure.