All cars should attract a high excise duty, and among them, cars above Rs 10 lakh should be taxed still more. True, February registered a 5.45 per cent fall in sales of all vehicles taken together, with passenger car sales falling 26 per cent. True, the economy is in the grip of a slowdown and the auto sector is one of its key drivers, spurring demand for steel, aluminum, rubber, electronic instrumentation and other components. But these are not convincing reasons for the auto sector to be spared of higher taxes.

An economy driven by the auto sector is headed down the wrong path. Our galloping oil imports are unsustainable; road transport, estimated to account for a third of the consumption of petroleum products, is a major, unrecognised reason for this increase. Petroleum imports rose by 22 per cent to $106 billion in 2010-11 and by another 47 per cent to $156 billion in 2011-12. In April-December this year, oil imports were up 13 per cent at $125 billion. Oil consumption has crossed 3 million barrels a day, against just over 2 million barrels a day in 2000. It has risen steadily, notwithstanding the ups and downs in GDP growth. The International Energy Agency has observed: “India’s transportation energy use is projected to grow at the fastest rate in the world…The demand for vehicles remained undeterred by implementation of emission standards, leading to higher vehicle prices.”

In view of this recent experience, the tax on SUVs may not curb SUV purchases. And, that’s a disturbing thought. Given the balance of payments pressures (oil is the primary driver of our trade deficit), we need an energy policy that discourages private vehicles and promotes efficient means of transport such as railways and buses, in that order. The fact that two-wheelers account for three-quarters of the output of all vehicles (or about 1.5 million out of 2 million in 2011-12) suggests that vehicular demand is partly a result of public transport inadequacies. This situation can, and should, be remedied .

The argument that favours tinkering with diesel prices over taxing cars — either by raising diesel rates for all, or by devising a dual pricing system for commercial vehicles and cars — is unjust and impractical. Diesel is meant for the transportation of mass goods. When it is diverted towards cars, it is the car-users who should pay up, and not the rest. And, a dual pricing system for diesel, with cars paying more, cannot be easily implemented. Why suggest such roundabout methods, when cars can be taxed at the factory gate?

The auto boom of the last two decades is a looming energy, BoP and environmental crisis that the Government and the Reserve Bank of India have refused to acknowledge. It is a big, hidden driver of our ‘twin’ (current account and fiscal) deficits. Surely, this is no way to grow and develop.

(This article was published on March 15, 2013)
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