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Old 14th May 2013, 09:42   #1231
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by sarthakgupta View Post
Diesel is subsidized on all three levels viz. subsidy on cost price, subsidy in form of less central excise duty and subsidy in form of lesser state VAT. Following is the rough price breakup for petrol and diesel:

Petrol:
Cost Price: Rs 41.30
Central Excise : Rs 9.48
State VAT : Rs. 10.20
Total : Rs. 63.09 (includes dealer commission et al.)

Diesel:
Cost Price: Rs 42.16 (cost price of diesel is more than petrol)
Subsidy: Rs. 2.90
Central Excise : Rs 3.56
State VAT : Rs. 5.77
Total : Rs. 49.69 (includes dealer commission et al.)
So petrol and diesel cost almost the same (2% difference is negligible).

But, not taxing an item is not the same as subsidizing an item.

Rice, for example, costs about Rs 15 and sells for about Rs. 50 in the market. If that rice were to be sold at Rs 2 to the poor, then 13 bucks is a subsidy.

However, by not taxing diesel as much as petrol, the government should not claim that diesel is being subsidized. Consider this, if your income were suddenly taxed at the next bracket and you received a rebate or subsidy that brought you back to your current levels - would that mean you're receiving a subsidy?
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Old 14th May 2013, 09:50   #1232
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by Recompose View Post
So petrol and diesel cost almost the same (2% difference is negligible).

But, not taxing an item is not the same as subsidizing an item.
It doesn't matter what you call it. Is there a reason why diesel car owner's fuel should be taxed less than petrol car owner's fuel?

Also there is a Rs. 3 actual subsidy. So first that should be removed and then the tax difference.
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Old 14th May 2013, 10:07   #1233
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Originally Posted by Recompose View Post
So petrol and diesel cost almost the same (2% difference is negligible).

But, not taxing an item is not the same as subsidizing an item.

Rice, for example, costs about Rs 15 and sells for about Rs. 50 in the market. If that rice were to be sold at Rs 2 to the poor, then 13 bucks is a subsidy.

However, by not taxing diesel as much as petrol, the government should not claim that diesel is being subsidized. Consider this, if your income were suddenly taxed at the next bracket and you received a rebate or subsidy that brought you back to your current levels - would that mean you're receiving a subsidy?
Yes and no. Yes, because taxes or lack of it, is not a subsidy in a literal sense. No, because higher taxes on petrol to make up revenue loss in diesel. So, apart from direct subsidy in diesel, there is indirect subsidy as well. With time when diesel price is deregulated and stops being a holy cow, taxes should get more fair on the two fuels.

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Originally Posted by tsk1979 View Post
Nope. Diesel engines are more expensive by just a very small amount. The reason diesel cars cost more is because companies can price them higher. So if a diesel engine costs 20,000 more to manufacture, the company will price it 1L higher because it can do so.
I beg to differ. Cost of engines and supporting systems depends on
* cubic capacity of engine. A 1.2l engine is cheaper than 1.5l one even if both are NA.
* NA vs Turbo (and possibly an intercooler)
* beefed up suspension for heavier engine and higher torque from it.
* Miscellaneous stuff including possibly updated transmission, extra noise insulation, uprated fuel pump etc)

On all the above fronts diesel engine costs more than a petrol one. Except for a few exceptions, a bigger engine is required for diesel than petrol, Turbo vs NA etc.
Ofcourse, Indian car manufacturers are making hay while sun shines by charging extra premiums. But worldover, diesel models cost significantly more than comparable petrol ones.

Last edited by FlyingSpur : 15th May 2013 at 08:51. Reason: Please use the edit / multi-quote functions instead of creating back-to-back posts.
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Old 14th May 2013, 10:52   #1234
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by carboy View Post
It doesn't matter what you call it. Is there a reason why diesel car owner's fuel should be taxed less than petrol car owner's fuel?

Also there is a Rs. 3 actual subsidy. So first that should be removed and then the tax difference.
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Originally Posted by lancer_rit View Post
Yes and no. Yes, because taxes or lack of it, is not a subsidy in a literal sense. No, because higher taxes on petrol to make up revenue loss in diesel. So, apart from direct subsidy in diesel, there is indirect subsidy as well. With time when diesel price is deregulated and stops being a holy cow, taxes should get more fair on the two fuels.
From what I understand, a subsidy is when the government makes available a product at a rate lower than prevalent market rates. As Sarthak shared, diesel costs ~ Rs. 42 and is sold around ~ Rs. 50. If they're selling the fuel for a price than it costs them, where is the subsidy? Where is the revenue loss? Or do they mean projected revenue loss?

For the Indian government, complete deregulation of diesel = equal taxation on both fuels. Currently, by "regulation" of diesel prices they mean 'We'll not tax you as much'.

There is no reason why a diesel car owner should pay lesser tax on his fuel than a petrol car owner. A higher cost upfront is no tradeoff for paying lower taxes on the fuel.
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Old 14th May 2013, 11:03   #1235
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by ACM View Post
The 4L extra over P variant may give a better resale but there is also the cost of money of 4L extra for the period one hold the vehicle.

So if 4L extra translates to Rs. 2.5L extra at sale then the Diesel has still cost Rs. 1.5L extra plus Rs. 40K per year in terms of cost of money = Rs. 2L over 5 years.

So a Diesel cost Rs. 4 + 2= Rs. 6L and got back an extra Rs. 2.5L still it would cost Rs. 3.5L more.
Just did a quick check on carwale for used Skoda superb petrol and diesel.

Petrol superbs are around 10-12lakhs for the TSI AT and diesel superbs are prices between 16-20L.

That's more than the 4L paid when buying the car. So in effect you end up recovering the 4L plus some more.
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Old 14th May 2013, 11:13   #1236
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by pgsagar View Post
Wonder if diesel party is about to end. There is a possibility of both costing nearly same, few years hence, if what happened in Goa already is any indication in that direction.
The party will continue for some time to come, but not long for sure.
But due to difference in taxes, I feel a difference of Rs. 5 - 7 per liter will always remain between Diesel & Petrol.

But this will fuel demand of Petrol cars, especially in small car segment & yes as you said, Maruti is once again best placed to make the most of the shift in consumer's preference in future.

Quote:
Originally Posted by ff1609 View Post
If you buy now and sell 4 years later, the difference in resale wouldn't be there because running costs wouldn't differ much! What you did not take into account is that D runs much higher maintenance bills.
Hello FF1609,

As you said, going forward, say 4 years down the line I feel prices of used petrol & diesel cars will be almost at par. I feel given the current prices of diesel & possibility of future hikes buying a diesel cars will make sense only if your monthly usage is more than 1500 kms, especially whem it comes to small cars.

Thanks,
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Old 14th May 2013, 11:24   #1237
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

Quote:
Originally Posted by Vid6639 View Post
Just did a quick check on carwale for used Skoda superb petrol and diesel.
Petrol superbs are around 10-12lakhs for the TSI AT and diesel superbs are prices between 16-20L. That's more than the 4L paid when buying the car. So in effect you end up recovering the 4L plus some more.
Yep but I guess I miscommunicated - I meant that the prices would be closer LATER when the price of petrol and diesel fuel and cars are closer to each other. Not today. implying that then the price difference in the original cars too would also be lesser than Rs. 4L and also the perceived value in Diesels being lower the advantage it would have too would be lower. - Maybe 1-1.5 years down the line. Yep the advantage of FE would always remain but the Fuel Price difference advantage when missing the difference in Car prices too would go down.

Of course that does not stop someone (like me) from buying a Diesel engine just because he finds it more fun to drive due to the Turbo. But then we now have the same impact with some petrol vehicles as well.
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Old 14th May 2013, 11:28   #1238
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

Quote:
Originally Posted by Vid6639 View Post
Just did a quick check on carwale for used Skoda superb petrol and diesel.

Petrol superbs are around 10-12lakhs for the TSI AT and diesel superbs are prices between 16-20L.

That's more than the 4L paid when buying the car. So in effect you end up recovering the 4L plus some more.
Thanks for the well researched post, lots of comments here about long term cost of finance etc, it seems the the difference is paid back with interest even in the Superb.

I think the petrol Superb sells well because urban buyers with limited running get a Superb, outside the big cities most Superbs are diesel. High running plus absolutely no takers for a second hand petrol Skoda, also some buyers put up full payment, in which case running cost are nearly half of the petrol variant.

Buy petrol only if you dont drive much and go on holiday by flight/train/bus. I never understand why people say that they buy a petrol because they have limited running, the reason for limited running is the high cost of running a petrol. People who buy diesel eventually start doing long distance trips once the figure out the economics. Financial mumbo jumbo aside, diesels have come a long way, lower running cost and higher resale means that they are here to stay. Most buyers live on a salary, lower fuel cost are easier than any other variable that contributes to TCO.
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Old 14th May 2013, 12:23   #1239
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

Quote:
Originally Posted by Vid6639 View Post
Just did a quick check on carwale for used Skoda superb petrol and diesel.

Petrol superbs are around 10-12lakhs for the TSI AT and diesel superbs are prices between 16-20L.

That's more than the 4L paid when buying the car. So in effect you end up recovering the 4L plus some more.
Just looking at it from the buyer's perspective. If that's the price difference between the two as on date, then what sense does it make to go for the Diesel AT by paying upwards of Rs. 6L for the diesel over the petrol?

Lets keep the unreliable 7 DSG on the TSI AT out of the equation for a moment. With current trend in fuel prices, it makes absolutely no economic sense!
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Old 14th May 2013, 12:35   #1240
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by carboy View Post
Is there a reason why diesel car owner's fuel should be taxed less than petrol car owner's fuel?
Why do you think in terms of diesel car owner's fuel vs petrol car owner's fuel mostly?

There are more uses with diesel as a fuel, than for private car owners, which helps in powering the nation. And, that need not exactly mean private car owners (diesel or petrol) should also avail this subsidy; but on a counter thought, why don't we have any issues in taking LPG at a subsidized rate?

If there seems no practical way to restrict subsidized diesel to the mass transport, agriculture, logistics, industry, fishing sectors etc, I support taxing of private diesel cars more - just to recover whatever maximum (on an average) subsidy a private diesel car can avail within the tax period.
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Old 14th May 2013, 12:59   #1241
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by Santoshbhat View Post
Just looking at it from the buyer's perspective. If that's the price difference between the two as on date, then what sense does it make to go for the Diesel AT by paying upwards of Rs. 6L for the diesel over the petrol?

Lets keep the unreliable 7 DSG on the TSI AT out of the equation for a moment. With current trend in fuel prices, it makes absolutely no economic sense!
As a used car buyer, it makes no sense in picking up a used diesel premium car since the prices are too high. A look at Fortuner used prices will tell you that it is only 2-3 lakhs lesser than a new one for a 2-3 year old model.

A person I know was looking at used Vento TDi and found that a 2 year old Vento was just 2L lesser than a new one. I told him to check out used Altis and even top end Altis was lesser than the Vento. If your ok with the petrol, imagine getting a top end Altis which is a segment above for lesser than a used Vento diesel.
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Old 14th May 2013, 13:02   #1242
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

These rules on tax etc were made to benfit those who are in transport business. Their benefit comes at the cost of those who buy vehicles for personal use.

This is demonstrated in the fact that petrol is taxed much more than diesel.
Also, most of us do not know that in Karnataka (the state with highest road tax for personal vehicles) - trucks for commercial use need to pay a lifetime road tax of just between 10-20,000 rupees depending on their weight . On the other hand even a Maruti Swift pays over a lakh.

This is totally wrong considering that the commercial vehicles are run to make a profit and personal vehicles (still mostly petrol) are an expense and the owner only loses money spent on fuel and depreciation. And please do not get started on the tangent that owning a vehicle is a luxury - it isnt!

Quote:
Originally Posted by Recompose View Post
From what I understand, a subsidy is when the government makes available a product at a rate lower than prevalent market rates. As Sarthak shared, diesel costs ~ Rs. 42 and is sold around ~ Rs. 50. If they're selling the fuel for a price than it costs them, where is the subsidy? Where is the revenue loss? Or do they mean projected revenue loss?

For the Indian government, complete deregulation of diesel = equal taxation on both fuels. Currently, by "regulation" of diesel prices they mean 'We'll not tax you as much'.

There is no reason why a diesel car owner should pay lesser tax on his fuel than a petrol car owner. A higher cost upfront is no tradeoff for paying lower taxes on the fuel.
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Old 14th May 2013, 13:10   #1243
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Originally Posted by Recompose View Post
From what I understand, a subsidy is when the government makes available a product at a rate lower than prevalent market rates. As Sarthak shared, diesel costs ~ Rs. 42 and is sold around ~ Rs. 50. If they're selling the fuel for a price than it costs them, where is the subsidy? Where is the revenue loss? Or do they mean projected revenue loss?
You look at subsidy only from the govt. perspective. I look at it also from the consumer perspective. If a petrol car owner pays more, so that a diesel car owner pays less for a litre of fuel, the former subsidies the latter - because the govt still wants to target a certain revenue from taxes of fuels.
Quote:
There is no reason why a diesel car owner should pay lesser tax on his fuel than a petrol car owner. A higher cost upfront is no tradeoff for paying lower taxes on the fuel.
Absolutely, that is what I am saying. The input cost of fuel should determine its selling price in an equitable manner wrt taxes imposed.

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Originally Posted by Santoshbhat View Post
Just looking at it from the buyer's perspective. If that's the price difference between the two as on date, then what sense does it make to go for the Diesel AT by paying upwards of Rs. 6L for the diesel over the petrol?

Lets keep the unreliable 7 DSG on the TSI AT out of the equation for a moment. With current trend in fuel prices, it makes absolutely no economic sense!
All these anomalies are a function of the distorted tax structure and subsidies in diesel fuel.
Esp. for city runners running at 10k km annually, no sense in a diesel used (or new).
Given that we finally have artificial price differences between diesel and petrol being reduced, the chances that diesel used car prices will correct downcars (esp for hatch, C segment sedans etc) is high,

Last edited by Technocrat : 15th May 2013 at 02:08.
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Old 14th May 2013, 14:08   #1244
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by lancer_rit View Post
All these anomalies are a function of the distorted tax structure and subsidies in diesel fuel.
Esp. for city runners running at 10k km annually, no sense in a diesel used (or new).
Given that we finally have artificial price differences between diesel and petrol being reduced, the chances that diesel used car prices will correct downcars (esp for hatch, C segment sedans etc) is high,
Absolutely. While reliability & maintenance were a big reason - but in the olden days (maybe > 20 yrs ago) nobody wanted to touch a used diesel while there were ample takers for petrol powered variants. The subsidy (perceived or should I say propagated) on the fuel & different cross subsidization tax structures are the reason why this demand got skewed to a great extent. Maybe also a reason why there was less inclination to bring better petrol models to India as the consumers were blindly going for diesel whether it made economic sense or not (am sure very few buyers go for diesel for the better torque / driveability).

Am sure over next 12 months we should see the gap in prices both new & old coming down. There might still be a premium charged for diesel variants as it would cost slightly more to produce as well as being more efficient.
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Old 29th June 2013, 16:38   #1245
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

With the petrol prices going up again, I thought it was the right time to bump this thread.
Why is the government not increasing the price of diesel as decided by it, every month? When will politics not play a role in fuel pricing? As a Petrol car owner, firstly I pay fuel which is taxed higher, the additional tax being like an indirect subsidy to rationalize diesel prices. Diesel is the more economical fuel so it is a further disappointment. Why do we bear the brunt?
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