In Automobile industry, a rush to up diesel capacities

With the duty sword off the neck, carmakers are back with their diesel capacity expansion plans.

The finance minister spared the industry of any additional tax/duty on diesel cars in the Union Budget, though he increased excise duty by 2%.

Automakers had postponed their diesel engine expansion fearing a tax on diesel vehicles, whose demand has shot up due to diesel fuel prices staying low in comparison to petrol.

Companies including Maruti Suzuki and Hyundai had held up investments of more than Rs3,000 crore due to a lack of clarity on diesel pricing, according to reports.

Now with no additional duties on diesel vehicles, automakers said they will continue with their plans.

R C Bhargava, chairman, Maruti Suzuki India, said, “With no tax on diesel cars, we will have to consider increasing investment on the diesel side now as demand for diesel vehicles remains robust.”

“All of us will now have to rapidly speed up creation of capacity for diesel car production.”

Michael Boneham, president and managing director at Ford India, said, “We are happy that the finance minister did not announce any such tax. Our investment in Gujarat remains very much on track.” The upcoming Gujarat facility will manufacture cars and diesel and petrol engines.

However, industry veterans are still cautious.

A senior industry official said even though there has been no additional tax, there is a strong possibility that the government will further increase diesel prices.