Central diIdea

Recent remarks by Road Transport Minister have sparked discussions about India’s transition away from diesel-powered vehicles and the potential imposition of an additional 10% GST as a “pollution tax.”
While these remarks have stirred concerns in the automotive sector, the government’s commitment to reducing air pollution and greenhouse gas emissions remains a key driving force in this shift.

India’s Pushback against Diesel

Policy Shift: Minister’s comments align with a broader policy shift aimed at reducing India’s reliance on diesel. The government aims to produce 40% of the country’s electricity from renewables and achieve net-zero emissions by 2070.
Diesel Consumption: Diesel currently accounts for approximately 40% of India’s petroleum products consumption, with the transport sector being a significant consumer.
High Taxation: The government already imposes a 28% tax on diesel cars, coupled with additional cess based on engine capacity, resulting in a nearly 50% tax rate.

Industry Response: Several automakers have scaled back their diesel portfolios. Maruti ceased diesel vehicle production in 2020, citing the high cost of upgrading to meet BS-VI emission norms.
Emissions Concerns: Diesel engines emit higher levels of oxides of nitrogen (NOx), contributing to environmental concerns. The Volkswagen scandal in 2015 further tarnished diesel’s reputation globally.
Fuel Economy: While diesel engines offer better fuel economy and torque, the price difference between diesel and petrol has diminished since the decontrol of fuel prices in 2014.

Fuel Efficiency: Diesel engines offer higher energy content per liter and inherent efficiency, making them preferred for heavy vehicles and haulage.
Cost Consideration: Historically, diesel was significantly cheaper than petrol, driving a preference for diesel-powered vehicles. However, this price gap has narrowed.

Emissions Challenges: Diesel engines tend to emit higher levels of oxides of nitrogen (NOx), making them environmentally less favourable compared to petrol engines.
Volkswagen Scandal: The 2015 Volkswagen emissions scandal, where the company manipulated emissions controls during lab tests, tarnished diesel’s reputation globally, affecting perceptions in India as well.
BS-VI Emission Norms: The rollout of the BS-VI emission norms from April 1, 2020, posed a significant challenge for diesel vehicles. Meeting these stringent standards required complex and costly upgrades.
Economic Viability: Upgrading diesel engines to comply with BS-VI norms involved installing three crucial components: a diesel particulate filter, a selective catalytic reduction system, and an LNT (Lean NOx trap). This technological overhaul resulted in high costs for car manufacturers, making diesel options economically unviable.

Changing Economics: The historical price advantage of diesel over petrol has diminished since the decontrol of fuel prices in 2014. The price difference now stands at approximately Rs 7 per liter, significantly reducing the economic incentive for diesel vehicles.
Consumer Shift: Diesel cars, once preferred by Indian consumers, have seen their market share decline steadily, accounting for less than 20% of overall passenger vehicle sales in 2021-22.

Phasing Out Diesel: Globally, many countries are moving towards phasing out diesel vehicles in alignment with environmental goals.
Challenges in India: Implementing a total ban on diesel vehicles in India poses challenges due to substantial investments made by carmakers and oil companies in transitioning to BS-VI standards. Additionally, the commercial vehicles segment heavily relies on diesel, making an immediate ban disruptive.
Alternative Fuels: Experts emphasize the importance of technology-agnostic policies that prioritize stringent operational standards, including emissions norms. Transitioning to alternative fuels like liquefied natural gas (LNG) and exploring electric vehicles (EVs) can play a pivotal role in reducing greenhouse gas emissions.
Hydrogen Potential: The Energy Transition Advisory Committee report highlights the potential of hydrogen as a motive fuel, which could reduce emissions and transform the logistics market.
Environmental Initiatives: Oil marketing companies have taken steps to reduce the environmental footprint of diesel, including lowering sulphur levels and introducing biodiesel specifications.

India’s transition away from diesel is driven by environmental concerns, emissions reduction goals, and changing fuel economics.
While a pollution tax on diesel vehicles remains speculative, it reflects the government’s commitment to cleaner and greener alternatives.
This shift has implications for both the automotive industry and individual vehicle owners, emphasizing the need for cleaner and more sustainable transportation options.