No rationale for SC cess, and tax policy sclerotic
While automobile manufacturers celebrate the Supreme Court lifting the ban on registering large diesel vehicles—above 2,000 cc—in the capital on payment of a green cess, they have reason to be worried since the discussion in the court also centred around the possibility of extending the move to smaller diesel vehicles at a later date. That may or may not happen, but what’s not clear why SC first banned the registrations and later removed this. The IIT-Kanpur report, which is the most authoritative report before SC, clearly says that vehicle pollution accounts for 9% of all PM10 pollution in the capital and, of this, four-wheelers account for a tenth—while the share of diesel would be even less, it is important to note that large diesel vehicles of more than 2,000cc are a very small fraction of the total; so, if diesel cars are, at all, to be banned, it should be the smaller ones that comprise 70-80% of the population—extending the logic, it made little sense to restrict the chief minister of Delhi’s ill-advised odd-even scheme to only cars since they are far outnumbered by two-wheelers.
Apart from the issue of the relative volumes sold of each type of car, as the government affidavit in the SC brought out clearly, there is little correlation between the size of an engine and pollution levels—a Tata Motors’ Land Rover with a 2,933cc engine emits 0.019 gm/km of particulate matter (PM) versus 0.029 for a 1,493cc Mahindra XUV500. Which is why, if the government is at all serious about curbing pollution, it has to move to looking at emissions and not just engine size. Also, emission levels are a function of the quality of the fuel—PM levels used to be 0.25 gm/km when India was at BS-I levels in 1999 and this has fallen to 0.06 now under BS-IV—by the time India has BS-VI in 2020, it will be 0.0045, or the same across cars of all fuels.
While SC appears to have ignored this evidence and plumped for a higher taxation on large diesel vehicles, it would do well to keep in mind India’s almost sclerotic policy towards diesel. Even today, large diesel cars pay a much higher excise duty, so it is not clear just what the extra green cess is to achieve. While smaller vehicles pay an excise duty of 12.5%, diesel vehicles of over 1,500 cc pay 24% and those with more than 2,000 cc pay 27-30%. There is an infrastructure cess of 1% on top of this, which rises to 2.5% for small diesel cars and 4% for bigger ones; registration charges for diesel cars are also 25% higher than for petrol in Delhi. If the government wanted to discourage diesel by getting users to pay more, that would still be understandable. Yet, the taxes on different types of fuel tell an entirely different story. While an excise duty of R21.48 per litre is charged for petrol by the central government, that on diesel is only R17.33. It gets worse at the level of the states. Big states like Uttar Pradesh charge a VAT of 34.22% on petrol versus a mere 20.75% on diesel—Gujarat and Odisha have no discrimination. Surely if SC wants to discourage diesel, it needs to pass some ruling on this odd policy as well?