Business Today

No country for diesel cars

The changeover from a country that could not stop itself from obsessing over diesel cars to shunning them outright like it's nobody's business, has been rather sudden - a mere two years to be exact.

Sumant Banerji        Last Updated: July 20, 2016  | 20:59 IST
So much so that India was well on its way to becoming the largest market for diesel cars worldwide.
So much so that India was well on its way to becoming the largest market for diesel cars worldwide.

Sumant Banerji, Senior Assistant Editor, Business Today
The changeover from a country that could not stop itself from obsessing over diesel cars to shunning them outright like it's nobody's business, has been rather sudden - a mere two years to be exact. Till 2014, diesel cars were flying off the shelves while even robust discounts were not enough to push petrol versions. Manufacturers were scrambling to launch more and more diesel versions, and those who stuck with only-petrol variants were literally struck.

It seemed the good times would last forever. So much so that India was well on its way to becoming the largest market for diesel cars worldwide. It was however, too good to last.

A combination of rising clamour against pollution - that quickly turned to checking just vehicular pollution as it was easier to regulate - and the fuel losing its edge over petrol on price, resulted in the wheels coming off the diesel story.

Following Saturday's revision of fuel prices, the price difference between a litre of petrol and diesel in Delhi has come down to just Rs 8.23. Barring a week in December 2013, when the difference had plunged to Rs 7.55, this is the closest the two fuels have ever come to in terms of price since October 1990 - post-liberalisation for dramatic effect.

 

This is what the tapering price differential does to you as a consumer. If you had bought a diesel car back in July 2012, when the difference was at its highest at Rs 27.19 per litre, it would have taken you just about 68,000 km to recover the Rs 1,30,000 that you would have paid over a similarly specd petrol variant (we have taken Maruti Suzuki's popular Swift model for our calculations).

In other words, if you drive 60 km a day or 21,900 km a year, you would break even in just 37 months, a little more than three years. Diesel as a fuel has higher calorific value, which means it burns cleanly and offers 20 per cent better mileage compared to petrol. Coupled with the lower price thanks to the administered pricing mechanism in 2012, diesel offered 50 per cent better running cost than petrol.

In contrast, if you were to buy a diesel car today - July 2016 - ignoring the charms of a petrol car, you would need to drive a good 135,540 km to recover the extra money you would pay. Keeping everything else constant, that is a good 74 months - a little over six years. Compared to July 2012, the edge that diesel has over petrol in running cost has been blunted to less than 25 per cent.

The economics of the two fuels is not the only thing that is working against diesel cars. Just two days later on Monday, the National Green Tribunal, which has a particular dislike for gas oil decided to ban all diesel cars over 10 years in the National Capital with immediate effect. This followed a Supreme Court order last November that itself was prompted by NGT, which forbid all diesel cars with engine capacity more than 2,000 cc to be registered in Delhi and NCR region. That ban remains in force.

At the altar of clean air and curbing pollution, diesel is the sacrificial lamb. And the effects are visible. Share of diesel cars that had charged up to 58 per cent in 2012/13, has now come down to just 44 per cent in 2015/16. In absolute numbers, diesel cars sales have declined 6 per cent in 2015/16. Even for Sports Utility Vehicles (SUV) that were traditionally run on diesel, the share of the fuel has come down to under 80 per cent from over 90 per cent a couple of years ago. In Delhi NCR, which is at the heart of the curb on diesel cars, registrations have dropped 40 per cent in Q1 2016 over Q1 2015. According to Delhi RTO, registration of private diesel vehicles has fallen from 17,588 units in January 2015 to just 7,023 units in April 2016.

 

The bans and the threat of more curbs or imposition of higher cess on diesel vehicles have also impacted the resale value of the cars at least in the Delhi NCR region. Industry estimates suggest the resale value has come down 20-25 per cent in the past six months alone. Monday's verdict will bring that down further. Fear of other parts of the country replicating Delhi has also scared consumers away from diesel in other states.

From being its most cherished market, India has swiftly abandoned the diesel bandwagon.

 

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