The government's likely move to raise diesel prices has found an unlikely endorsement. Home-grown automobile major Mahindra & Mahindra (M&M), whose sales are predominantly driven by diesel-powered utility vehicles, has said an increase of Rs 5 a litre in the price of the fuel or a differential of up to 20 per cent with petrol price will not impact vehicle sales.
At present, at Rs 67.24 a litre in Delhi, petrol is 42 per cent costlier than diesel (Rs 47.14 a litre). The government is considering two proposals to raise diesel prices - hike of Rs 1 per litre every month for 10 months (as suggested by the Kelkar committee); and increase of Rs 2-3 a litre in a phased manner.
Pawan Goenka, president (automotive and farm equipment sectors), M&M, said: "A difference of 20 per cent between the prices of diesel and petrol would be more reasonable. Another Rs 5 hike won't affect demand. If the prices of petrol and diesel were to be made the same, that might affect sales of diesel vehicles. I feel the Indian UV-SUV market is going to remain diesel-driven for a long time."
Based on what Goenka says, his company does not see sales being hit even if diesel price goes up to around Rs 54 a litre (Delhi price) and petrol remains at the same level.
Goenka's statement is significant as it comes at a time when the government, after implementing a steep hike of Rs 5 a litre on diesel last year, is contemplating another increase in phases.
The automobile market has seen a dramatic shift in recent years, with consumer preference moving from petrol to diesel vehicles. M&M, which mostly manufactures diesel vehicles, has been a key beneficiary of this shift and has seen its passenger vehicle sales grow by around 30 per cent between April and December this financial year, against the 8.3 per cent industry growth in the segment during the same period.
Goenka, however, said demand for diesel vehicles had not surged only because of the gap in prices of the two fuels. "Last year was the best for diesel vehicle makers, not because of the fuel price gap but because there were a lot of diesel product offerings across segments."
However, Goenka is against any move to impose additional levy on diesel vehicles, a move mooted earlier by some sections in the government. "Given the reduction in price parity between diesel and petrol and talks of a further hike of Rs 1 over 10 months, there is no reason why tax should be imposed on diesel vehicles."
The share of diesel vehicles in the passenger vehicles sales in the country has grown to 58 per cent in the first nine months of the financial year, from 36 per cent in 2010-11.
Prime Minister's Economic Advisory Council Chairman C Rangarajan has, in fact, said diesel prices need to be corrected and aligned with international crude oil prices - to check rising consumption of diesel fuel and attain fiscal consolidation.