INDIA BUSINESS WORLD - JULY 2006
THE MONTH THAT WAS...

GOVT MAY HIKE EXCISE ON LCVS RUN ON DIESEL

THE Cabinet will take up a proposal to levy higher excise duty on light commercial vehicles (LCV) run on diesel. The idea is to discourage diesel-run LCVs as part of an energy-conservation strategy. If implemented, this is bound to impact the sales of LCVs. The finance ministry will examine the tax proposal shortly.

The Cabinet note, moved by the ministry of petroleum, says on account of the “Sizeable price difference between petrol and diesel, more and more dieselfuelled vehicles are entering the market”. This needs to be discouraged by adopting higher taxes and duties on LCVs run on diesel compared with those run on petrol.

The note also suggests that fuel-efficient vehicles may be “Encouraged by adopting relatively lower taxes and duties”. This broad principle will be fleshed out by the finance ministry, whose comments have been sought.

The proposal outlines a slew of energy-conservation measures in view of the expectation that global oil prices will not come down dramatically from present levels.

The proposal also strongly advocates further opening up of the ethanolblended petrol regime. It suggests Indian companies should be allowed to freely import ethanol from Petrobras of Brazil, the largest ethanol manufacturer in the world. It also says Indian companies must be encouraged to acquire sugar acerages in Brazil in order to produce ethanol. The Brazilian government openly invites foreign investments in sugarcane acreages and ethanol producing industries. Indian oil marketing companies(OMCs) may consider entering the business either on their own or with experienced partners in Brazil.

Sources said Indian OMCs are largely in the public sector, so they may be encouraged to tie up with Brazilian ethanol producing companies. This is the only way to ensure adequate supply of ethanol in case India goes for ethanolblended petrol.

The note also suggests adequate fiscal incentives for bio-diesel from various vegetable oils, rice bran, jatropha, curcus, palm and so on. The petroleum ministry has suggested that special subsidies must be given to encourage bio-diesel production, besides waiving excise duty and sales tax/VAT on the product.