The Diesel Disruption

Mr. Krishan Dhawan, June 10, 2019

The recent decision by Maruti Suzuki, which has a 51 per cent market share, to stop producing and selling diesel cars from April 2020 onwards represents a very significant inflexion point in an anotherwise hidebound industry.This decision is directly linked to the incremental cost implications of the introduction of BSVI fuel standards in April 2020. However, an important precondition has been the narrowing of the prices of diesel and petrol over the last five years once diesel prices were de-controlled in October 2014. Price decontrol was important not only to correct the distorted demand patterns that had emerged due to subsidized pricing but also from a fiscal perspective as the subsidy bill was huge. Subsequent attention to reducing the excise differential between the two fuel types resulted in further narrowing in prices to 10 per cent currently. As a result, diesel car sales which had climbed to 47% of total car sales in 2012-13, dropped to 19% by 2018-19.

This article originally appeared in ET EnergyWorld. Continue reading it here.