Find out: Why autos wish for diesel price hike this Budget

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Find out: Why autos wish for diesel price hike this Budget

The auto industry is up in arms against a hike in excise on diesel cars and says the government should consider a marginal hike in diesel prices instead of a hike in taxes.

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With the Budget approaching, the buzz around a hike in excise on diesel cars is gaining momentum. The auto industry is up in arms against the proposed move and says the government should consider a marginal hike in diesel prices instead of a hike in taxes, reports CNBC-TV18's Swati Khandelwal Jain and Anshu Sharma report.

A crucial inter-ministerial meeting was called by the heavy industries ministry to discuss the auto sectors wishlist for Budget 2012. We learn the proposed hike in excise duty on diesel cars was top of the agenda with the oil ministry pressing for a higher tax. Diesel cars now constitute nearly 40% of car sales compared to less than 20% a few years ago and this growth is being used by the government to build a case for a rumored Rs 80,000 hike in excise.

Automakers like Mahindra & Mahindra , which only makes diesel cars, and Tata Motors , which has a large share of the diesel car market, say a hike will hit sales in 2012.

Pawan Goenka, president of the automotive business at M&M says that an upfront tax will slow the growth diesel cars. "They have to find other ways and means of either reducing the gap in the diesel price or have dual diesel pricing."

In the last 15 years, with the exception of a couple of years, petrol consumption growth has been more than diesel. As per SIAM data, domestic car sales grew by 4.24% in FY11 and of a total of almost 22 lakh cars sold, almost 29% were diesel, while petrol car sales stood at a little over 71%.

But, in FY12 so far, diesel cars have seen a growth of 7.4%, as against a 4.3% growth in petrol cars owing to the significant price differential in fuel prices. But industry says instead of taxing the auto sector, the government should go in for a marginal hike in diesel prices

At present, the government levies 10% excise duty on small cars and 22% plus Rs 15,000 on big cars, whether on petrol or diesel. There is also a case being built for a differential tax on small diesel cars versus premium vehicles. The final call will rest with the finance ministry which is struggling to meet its fiscal deficit.

Watch the accompanying video for more details..