Environmental Economics
Diesel Car Ban: What All Government Will Gain
September 17, 2016
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World Health Organization reports New Delhi to be 11th dirtiest city in the world. Not only this, but the health problems and increasing levels of pollution also took attention of the authorities concerned. Various implementations have been made and many are in discussions to reduce the proliferating levels of pollution in the capital.

India’s top environment court ordered authorities to remove all diesel vehicles at least 10 yrs old off capital’s streets in a bid to help clean New Delhi’s polluted air. A similar ban was imposed last year on sale of large diesel cars. This ban will leave a huge impact on environment as well as economy of not only the capital, but of India as a whole. The Supreme Court order, banning registration of diesel engine vehicles displacing 2 litre and more may cover NCR, but impact on buyer sentiment is countrywide. Sale of petrol car and SUV’s for Jan-Feb’16 saw an up rise of 7% from year earlier and that of diesel fell to 7.3%; this was after the announcement of the ban in Dec in addition to the impact by the narrow gap created within prices of two fuels. Automakers worry that the future 20% sale could switch to petrol in response to the ban. With the demand changing huge economic losses will have to be incurred by the companies; also the court orders to levy additional tax on sale of diesel cars have been potentially hitting the sales. The additional tax will be beneficial for the government to gain revenue from big automakers, but it is a hurdle for the market players.

The diesel passenger vehicles faced a double edged attack; first by the shrinking gap between the prices of the two fuels and second by the SC ruling. This has hit sale of big diesel vehicles leading to huge economic losses and the stock market crash. It has worried automakers more as the market has returned to sluggishness and also the imposition of infra cess by the government.  Rakesh Batra, National Leader Automotive Practice at EY India feels, auto industry will witness a positive impact in short term period with sales of cars going up, but a negative impact in the long term basis as the sales of diesel cars go down. Governments’ tax revenue stream will be affected in the short term. Executive Director of Centre for Science and Environment said that, we certainly want to control dieselization until India gets greener diesel which is scheduled only in 2020 when Bharat stage VI emission norms kick in. This will prove to be economically better as well; it will prove to be optimal for the country’s requirement and no tax would be collected for its use. Until then, Environment Pollution Control Authority (EPCA) advises introduction of green tax of 30% on diesel vehicle. This will prove to be a positive step toward pollution control with government earning revenues in form of taxes in addition to a greener and cleaner environment. The government despite of all the tax and revenue collection will also benefit from the shipment of crude oil. At present, 34% of crude oil is imported to India; with the ban being adopted by many state governments, the demand for diesel will decline and at some point will affect the import of crude oil. But, technically it is not possible to completely eliminate diesel since 45% of refineries output after refining crude oil is diesel. Thus, whether the government will cut down on its expenditure or not is to be examined at more depth; but the market for diesel is to tumble for sure.

With the introduction of the ban, the country will witness not only environmental changes, but economic changes as well. The economy will face a mixture of results with the auto industry facing a low and the government benefiting at some places. The overall impact depends not only on the digits for the taxes and oil prices, but also on the demand for future vehicles by the consumer.

  • Sildenafil says:

    Hello! Cool post, amazing!!!

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