With no tax on diesel vehicles, auto makers mull expansion

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As the Budget has spared diesel vehicles from the much feared additional tax, auto firms such as M&M, Hyundai and Maruti Suzuki are expected to press ahead with plans to expand engine capacities in this segment.

Before the Budget 2012-13 was presented on Friday, Society of Indian Automobile Manufacturers (SIAM) had said that fear of diesel tax and lack of a clear roadmap on diesel pricing led auto companies to hold back investments of more than Rs 3,000 crore in India.

At present, petrol is deregulated but diesel prices are still decided by the government, which provides subsidy on the fuel that is used by the transportation sector and impacts the cost of several essential goods and services.

Rising petrol prices have increased manifold the demand for diesel vehicles over the past couple of years. Hence, of late, there has been strong demand from various quarters for an additional tax on diesel cars.

"There has been no mention of an additional tax on diesel vehicles or on the existing differential pricing of diesel in the Budget. I would therefore assume that diesel vehicles will not be treated any differently," Mahindra & Mahindra president (Automotive and Farm Equipment Sectors) Pawan Goenka told agencies.

He said this will encourage companies that had held back investments on new diesel engine capacities, awaiting clarity on the issue, to go ahead with their plans.

"As far as M&M is concerned, whatever we have held back on increasing production capacity of diesel vehicles, we will be going ahead now," Goenka said.

While he did not specify how much investment was held back on diesel expansion, the company had announced that till FY'14 it will invest Rs 5,000 crore on new products and capacity.

Hyundai Motor India Ltd (HMIL), which had put on hold its Rs 400-crore diesel engine plant last year, said it is evaluating the situation after the Budget.

"We have to weigh the pros and cons as there has been no mention of diesel tax in the Budget. Within two weeks we will be taking a decision on whether we should go ahead with our diesel plant or not," a spokesperson for HMIL said.

The plant was envisaged to have an annual capacity of 1.5 lakh units for three types of engines -- 1.1 litre, 1.4 litre and 1.6 litre for the domestic market.

Maruti Suzuki India (MSI), which has also been awaiting clarity on the issue, said those companies with diesel manufacturing capacity would be pleased with the Budget's silence on petrol-diesel price differential.

Asked if MSI would consider going ahead with the plans for increasing diesel engine capacity, company chairman R.C. Bhargava said: "We can only say after the project report is completed and considered by the management."

When asked if it was encouraging for automakers that diesel tax has not been imposed, Bhargava said: "Yes, it is encouraging for those companies with diesel manufacturing capacities but if I were a petrol car maker, why should I be discriminated?"

Stating that diesel prices should also be made market driven like petrol, he said it is not yet clear how long the current quantum of disparity in the prices between the two fuels would continue.

"If there has to be a differential, the government must spell out clearly by how much, so that we can plan accordingly," Bhargava said.

SIAM said the leaving diesel vehicles from additional tax was one of the very few positives for the auto industry in the Budget.

"At least diesel vehicles have not been attacked. There seems to be a clarity on the issue for the time being. I think this may encourage our members to go ahead with their planned investments on diesel engine plants," SIAM senior director Sugato Sen said.

Earlier, SIAM had said many of its members were still unclear whether they should invest on diesel technology or not in India as there is no clarity on how the fuel will be priced in future.

It had said firms that have held back investing on diesel engine plants include Maruti Suzuki, Hyundai Motor India, Ford India, General Motors India and Tata Motors.