Even as leading Indian automobile makers increased production capacity of diesel vehicles by a third over last year to meet a sudden spurt in demand, inventory of unsold diesel vehicles has more than doubled to 107,818 units in May this year, compared with 52,250 in the same month a year earlier, industry estimates reveal. Petrol car inventory, meanwhile, has declined marginally by 1.75 per cent to 193,094 units in the same period.
This rise in inventory has come at a time when the government is considering imposing additional levies on diesel vehicles to curb the dieselisation of the domestic automobile industry. The share of diesel cars in the overall passenger vehicle sales in May this year rose to 44 per cent, from 32 per cent in the same month a year ago.
The price differential between diesel and petrol stand at a whopping Rs 30.69 a litre. This has made an increasing number of consumers opt for vehicles fuelled by diesel, which is 75 per cent cheaper than petrol in India — one of the highest price differentials globally. This is in stark contrast with the European Union, where the average price gap is three per cent.
With consumer sentiment low, auto makers have expressed serious concern over additional taxes on diesel vehicles. “Interest rates were expected to come down, but that has not happened. Inflation remains high, the rupee weak. There is a waiting on all cars, diesel or petrol, except one or two models,” said a senior executive at a leading automobile company.
For instance, diesel vehicle inventory at the homegrown auto major Tata Motors was 40,296 last month, while that at Mahindra & Mahindra had risen 69 per cent to 24,248 units.
Despite a 12 per cent rationalisation in petrol vehicle output capacity in 2011-12, there were 193,094 unsold petrol vehicles in the market in May. Small car giant Maruti Suzuki alone accounted for half of this.
The overall inventory of petrol and diesel vehicles stood at 300,912 units last month, considerably higher than the 221,135 passenger vehicles sold during the period. Capacity utilisation levels in the domestic auto industry have already plunged by four percentage points to 66.35 per cent in 2011-12.
An executive at another automobile company added: “The reason for petrol cars not selling very well is the high petrol price, and not the low diesel price. Consumers will not start buying petrol vehicles if additional taxes are induced on diesel vehicles. Whatever sales are taking place would also be hampered.”
Last week, Petroleum Minister S Jaipal Reddy had recommended an additional tax of Rs 2,55,000 on large and medium diesel cars and Rs 1,70,000 on small diesel cars to make up for the subsidy on diesel.
However, estimates suggest diesel vehicles for personal use account for one per cent of the overall diesel consumed in the country.
The executive quoted earlier said, “The government should reduce the price gap between diesel and petrol. With every one rupee increase in diesel price, the government will earn Rs 6,000 crore, whereas for a five per cent increase in excise duty on passenger vehicles, the government would get Rs 2,500 crore. Besides, a levy would also choke sales.”