India must control car boom, says study

Posted: 19 February 2007

India's state-sponsored car boom, without any efforts towards making cars more fuel-efficient, is inciting oil guzzling that the country cannot afford says a new study, which calls on the government to stand up to car industry demands for more tax cuts and expansion of their polluting diesel car fleet.

"India is in the grip of an impending energy crisis. We are consuming more oil than ever before, and the growing transport sector is guzzling a lot of this oil. The 2007-08 Union budget must address this linkage between vehicles and energy insecurity," says a new study on fuel economy in the transport sector, released by the Centre for Science and Environment (CSE). Based on the findings of the study CSE has proposed a set of immediate tax corrections to the Union finance minister P Chidambaram to deal with the challenges of 'motorisation', pollution and energy insecurity.

"It is unfortunate that the oil price shock of last year has receded so fast from public memory. There is no policy urgency to address deepening of energy insecurity due to rising number of cars supported by tax incentives," says Anumita Roychoudhury, associate director of CSE and leader of the study team.

More diesel models

The transport sector is the single biggest user of oil and oil products - using up around 30 per cent of the total consumption in the country. Almost all the petrol used is consumed by private vehicles, which also account for consumption of 62 per cent of diesel in the transport sector.

More and more vehicle manufacturers are introducing diesel variants. If the numbers and usage of cars grow unchecked and the government fails to introduce fuel economy standards to make them more fuel-efficient, India will hurtle towards a serious energy crisis, the study warns.

Since 2001, the Union budget has lowered taxes on cars successively, resulting in a phenomenal increase in car numbers. According to industry estimates, car sales crossed the one million mark in 2006. Urban Indians are increasingly spending more on travel, and in the absence of organised mass transport, are relying heavily on personal vehicles. After food, transport accounted for the largest part of household budgets. Therefore, higher oil prices hurt.

Until recently the market has favoured small cars and two-wheelers. As small engines use less fuel, the average fleet-wide fuel consumption has remained low. "But unfortunately, as our new analysis shows, with economic growth there has been a steady shift towards bigger cars that guzzle more fuels." While the share of the smallest cars with 800 cc engines has dropped from 21 per cent in 2001 to 11 per cent in 2004, the sales of mid-size cars has grown from 12 per cent in 2001-02 to 17 per cent in 2004-05. The share of bigger cars is also increasing steadily, but the budgetr does not account for this shift towards larger engines, says Roychowdhury.

Tax concessions

CSE is concerned that the car industry, in the meantime, is taking advantage of the tax concession for small cars allowed in the last budget to sell more diesel models. The more relaxed limit for defining a small diesel car has greatly increased sales and toxic pollution, says the report. And, while a large number of countries have begun to enforce fuel economy standards for vehicles, India is shying away.

CSE wanrs to see:

  • Mandatory fuel economy standards, with fiscal policies targeted at energy efficiency and linked to fuel economy of vehicles and promotion of advanced technologies such as hybrid electric vehicles.

  • Higher taxes on all cars, but with a differential in favour of small cars and fuel-efficient vehicles.

  • Discouragement of diesel cars without efficiency and clean emissions standards. (India's most popular small diesel car is more than 20-30 per cent less fuel-efficient and 50 per cent more polluting than its counterparts in Europe.)

  • A stop the use of diesel in cars or equalise petrol and diesel fuel prices in cities. (The lower price of diesel, along with tax sops is leading to increasing use of this 'poor' person's fuel by the richest car owners.

  • Imposition of an environmental charge on diesel cars, to be based on the cost to the environment of diesel fumes.
  • Incentives for public transport, which can significantly reduce both energy and pollution impacts of motorisation. (A World Bank estimate shows that, in India, the total tax burden per vehicle kilometre is 2.6 times higher for public buses than cars.)

    The answer to the formidable challenge that India faces today, says Roychoudhury, "does not lie in reducing or subsidising the cost of fuel. It will lie in reinventing our patterns of mobility and in ensuring fuel efficiency of our cars. We must introduce fuel economy standards and mandate a roadmap for the future. Many countries, including China,have introduced such standards, primarily for energy and environmental security."

    CSE press release, 15 February 2007 See also