Gadkari’s diesel dare spooks auto stocks

Union minister for road transport and highways Nitin Gadkari. (PTI)
Union minister for road transport and highways Nitin Gadkari. (PTI)

Summary

Union minister for road transport and highways Nitin Gadkari told an industry gathering that he would consider proposing an additional “pollution tax” on diesel engines if the industry doesn’t transition away from the “hazardous” fuel quickly enough

NEW DELHI : The spectre of an additional tax on diesel vehicles rattled shares of top automakers on Tuesday before an official clarification that there was no such active proposal before the government.

Earlier in the day, Union minister for road transport and highways Nitin Gadkari told an industry gathering that he would consider proposing an additional “pollution tax" on diesel engines if the industry doesn’t transition away from the “hazardous" fuel quickly enough. However, the minister later issued a clarification that said, “It is essential to clarify that there is no such proposal currently under active consideration by the government", and “it is imperative to actively embrace cleaner and greener alternative fuels. These fuels should be import substitutes, cost-effective, indigenous and pollution-free".

Shares of companies such as Tata Motors Ltd and Ashok Leyland Ltd —the country’s largest and second-largest commercial vehicle makers, respectively—and Mahindra and Mahindra Ltd, which sells nearly one in two diesel passenger vehicles in the country, fell in intraday trading. On a day the BSE Sensex index rose 0.14%, Ashok Leyland fell 2.68% to 179.85, Mahindra & Mahindra 1.55% to 1557.60 and Tata Motors 2.19% to 620.80.

Graphic: Mint
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Graphic: Mint

“Pollution is a serious problem... I have been preparing a letter for the last 8-10 days to discuss with the finance minister. Today, when I meet the finance minister, I am going to request her that in the coming time, whoever uses diesel engines should be imposed a 10% additional GST so that the transformation will happen quickly... It is my request to the industry to accelerate its transition to clean fuels," Gadkari said at the 63rd annual SIAM convention.

“Along with an increase in automotive 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 generators to every engine which runs on diesel," Gadkari said, adding, “I am hopeful we don’t have to come to that scenario". Gadkari termed diesel a hazardous fuel, which also contributes significantly to India’s import bill. He urged the industry to take “suo moto" initiative to phase out diesel, or the government will have to take steps to make diesel vehicles “difficult to sell".

Gadkari has been a long-time proponent of green fuels like ethanol and hydrogen and has spearheaded programmes to encourage the production of energy from biomass. The minister, who drives Toyota’s fuel cell passenger vehicle Mirai, has set a target for 30% EV penetration in the passenger vehicle market by 2030. Previously, his push to the industry to set ambitious targets for EV adoption has also borne fruit in the form of faster adoption of EVs in the country.

To be sure, demand for diesel-run passenger vehicles in India has been on the wane. From nearly 48% in 2014 to just under 18% now, diesel as a powertrain option has been becoming less popular, despite SUVs now accounting for nearly one out of every two vehicles sold in the country. Companies such as Maruti Suzuki have entirely vacated the diesel segment, while other passenger vehicle makers have targets to achieve 15%-30% of sales from EVs by 2030.

However, when it comes to commercial vehicles, diesel remains king in both light and medium and heavy (M&HCV) trucks, as electric vehicles, hydrogen ICE and hydrogen fuel cells remain nascent technologies. Even CNG (compressed natural gas) has now dropped to less than 10% of the light commercial vehicles market from the peak it saw of over 40% early last year. This means diesel will continue as a preferred technology for commercial vehicles till alternative fuel adoption reaches an inflection point.

“I think the minister’s intention was to provoke the industry to act fast. We have a long way to go, but the transition to green mobility will happen sooner than later and sooner than anyone is imagining. The transition will follow a hockey-stick approach. Right now, a lot needs to be done in terms of collaboration between industry and the government. The government needs to provide much better platforms for the industry to invest," said Shenu Agrawal, managing director and chief executive of Ashok Leyland.

“Of course, different segments will behave differently - LCVs and buses will be the first ones to adopt new technologies while M&HCVs will take some time, although even that is already happening in certain applications, like at ports, where entire fleets are being replaced with hydrogen-run vehicles, but large-scale change will take more time," he added.

“We have to move towards zero-emission vehicles. That’s the purpose. After the implementation of BS-VI phase two norms, any fuel is equally clean or unclean. In fact, diesel is inherently more efficient than petrol and more beneficial from a CO2-emissions point of view," said Girish Wagh, executive director of Tata Motors.

According to Mahindra & Mahindra, the company with nearly 47% market share in diesel-run passenger vehicles, the company’s EV penetration targets present a roadmap to transition away from diesel. “Gasoline is a strong part of the portfolio because we have invested in producing world-class petrol engines," said Veejay Nakra, CEO, automotive division, Mahindra & Mahindra. “IC-engines will continue to be a strong part of anyone’s portfolio, but we would want to give the choice of EVs, flex fuel, gasoline and diesel to the consumer. We want the customer to have the power of choice at the end of the day," Nakra said.

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