Estimates show while diesel production capacity rose 35 per cent in 2011-12, production capacity for petrol vehicles fell about 12 per cent.
In Delhi, petrol is 43 per cent more expensive than diesel. High petrol prices have led to an increasing number of consumers opting for diesel cars in the last year.
In the first half of this financial year, while diesel vehicle sales rose 40 per cent to account for about 53 per cent of the passenger vehicle industry, demand for petrol vehicle fell 20 per cent.
Companies such as Maruti Suzuki, Hyundai Motor India, Volkswagen, Honda Cars India and Volkswagen have announced plans to set up diesel engine manufacturing units in the country to meet the growing demand for diesel cars.
While Maruti Suzuki has committed investment of Rs 1700 crore to enhance diesel engine production capacity to 300000 units by 2014, Hyundai has approved investment of about Rs 1600 crore to set up a new engine plant and metal press shop.
"The demand for diesel vehicles has been spurred by the subsidy offered on the fuel. The government realises this, and a correction is necessary. Fuel prices should be market-regulated. But instead, if the government decides to impose additional taxes on diesel vehicles, it wouldn't be an optimum solution," said another senior executive, on condition of anonymity.