Mint Explainer: Why India isn't ready to ditch diesel just yet

His words were meant to provoke, clearly, as is the minister's usual manner. The prospect of a tax on the fuel that powers all large trucks in India caused stock prices to plummet. Here's what transpired, and why India is unlikely to ditch diesel entirely any time soon.

What was Gadkari's message to the industry?

"Along with an increase in automobile manufacturing, import of fossil fuels is also going up and will keep going up. Pollution will adversely affect the citizens of the country. So, please leave diesel and petrol behind and contribute to a pollution free-economy; otherwise, I will urge the finance minister to impose a 10% ‘pollution tax’ on every engine that runs on diesel," Gadkari said, adding, "I am hopeful you will act fast and I will not need to take such a decision".

Soon after, the stock prices of Tata Motors and Ashok Leyland, the country's largest and second-largest commercial vehicle makers respectively, and Mahindra & Mahindra, which accounts for almost half of all diesel passenger vehicles sold in India, started to tank. This prompted Gadkari's office to clarify that no such proposal was under active consideration. While that may be the case, the message to the industry is clear: the government doesn't want engines powered by diesel around for too much longer. But for India, giving up the fuel will be challenging.

What is the share of diesel vehicles in India's automobile market?

To be sure, diesel-run engines have been steadily losing favour with automakers owing to tighter regulations and emissions norms, which make diesel engines more expensive to produce and thus harder to sell. The price difference between petrol and diesel engines has also been decreasing consistently.

Data from auto intelligence firm JATO Dynamics shows that diesel variants comprised about 48% of the passenger-vehicle market in 2014 but only 18% at present. Over the same period, the share of petrol variants has increased from 42% to 68%. Eco-friendly powertrains such as CNG (which accounts for 11.4% of all passenger vehicle sales) and electric vehicles (2.44%) are becoming popular with customers as automakers offer more choices with these models and the government incentivises their adoption.

But India's commercial-vehicle industry is almost entirely dependent on diesel. While the government has laid out mandates for State Transport Undertakings (STUs) to procure electric buses for public transport, and worked out a business model that takes away the operational risk of running the buses with new technology for manufacturers, medium and heavy commercial vehicles don't have viable alternatives just yet. Even among small and light commercial vehicles – small trucks meant for last-mile transport – electric vehicles and CNG models are still new.

Why are commercial vehicles so dependent on diesel?

The short answer is this: diesel is the most widely available, economically feasible and efficient fuel for trucks that carry heavy loads across long distances. The alternatives, such as hydrogen fuel cells and hydrogen combustion engines still face several hurdles. The price of hydrogen needs to drop by two-thirds for it to become viable for commercial use, industry experts told Mint. Even ethanol, which currently costs around ₹68 a litre, is an expensive fuel because it is far less efficient than petrol or diesel.

Green hydrogen production and distribution for transport is only now starting to develop. Electric buses, which are rapidly being deployed by state governments under a gross cost contracting (GCC) model pose a huge payment risk for manufacturers as the vehicles are on their own balance sheets. A payment-security mechanism to tackle this is being worked on.

Owing to these challenges, diesel engines will continue to dominate long-haul transport, even as improving total cost of ownership (TCO) patterns and government mandates hasten the adoption of CNG and electricity for small commercial vehicles.

But haven’t diesel engines become less polluting?

With the implementation of Bharat Stage VI emissions standards, diesel engines must meet strict requirements to reduce emissions of carbon dioxide, other noxious gases and particulate matter. Therefore, "all fuels are now as unclean or as clean as the other", according to Girish Wagh, executive director, Tata Motors.

Large automakers have invested heavily on upgrading their diesel engines to meet the latest emissions standards. Diesel also has an inherent advantage in meeting lower CO2 emission requirements. It is a more efficient fuel than petrol and therefore releases less CO2.