OREANDA-NEWS. March 23, 2011. Sheila DikshitThe prices of diesel cars in the capital are likely to increase sharply, with the city government today announcing an additional tax of 25 per cent on the existing tax rates for all diesel-propelled vehicles sold here.

The Sheila Dikshit-led government appears to have taken a cue from last year’s Kirit Parikh group recommendation of an additional levy of Rs 80,000 on every diesel vehicle sold in the country.

While clear estimates are not available as to the likely extent of price increase, car makers fear a negative impact on sales. There is no official data on the number of diesel vehicles sold every year, but industry estimates indicate nearly a third of all vehicles sold in the capital come from diesel variants. Diesel variants account for over 60 per cent of sales for models which offer the fuel option.

This is the second fiscal blow for the auto industry in Delhi. The Union Budget tabled last month had proposed increasing the import duty on pre-assembled engines, gearbox or transmission mechanisms to 60 per cent from the earlier 10 per cent. In a concession, the Union finance Ministry said today a 30 per cent duty would be charged on these parts.

Shashank Srivastava, chief general manager, marketing, Maruti Suzuki India , said: “The price differential between diesel and petrol prices has increased over the last one year. This in turn led to a spurt in sale of diesel vehicles. The proposed tax would definitely affect sales adversely.”

While the price differential between diesel and petrol was Rs 9.70 in June 2010, it has more than doubled to Rs 20.62 at present. A litre of petrol costs Rs 58.37 in Delhi today, compared to the Rs 37.75 charged per litre of diesel.

Maruti Suzuki offer diesel variants of compact cars Ritz and Swift, and sedans SX4 and Swift Dzire. Though the diesel versions are priced Rs 80,000-85,000 higher than the petrol variants, the company has seen overall sales for a model picking up on introduction of a diesel fuel option. As much as 65 per cent of the 31,000 units of these four models the company sells monthly comes from diesel variants.

Vishnu Mathur, director general, Society of Indian Automobile Manufacturers, while conceding the move may impact the industry adversely, said: “We have not received the notification yet. We have to assess whether it will be applicable only on big cars or also on smaller passenger vehicles.”

A senior executive of an auto company, who did not want to be identified, said the manufacturer did not see a drastic impact in sales immediately. “Over a fifth of overall vehicles sold every year in Delhi are diesel propelled. Our major sales for diesel variants come from Punjab and some of the southern states which are stronger diesel markets as compared to Delhi.”

V G Ramakrishnan, senior director, Frost & Sullivan, said: “The levy would be a potential game changer for petrol vehicles sold in Delhi. The CNG distribution network is not strong in the capital and with price of diesel vehicles set to rise sharply, consumers would opt for petrol variants.” However, he added, since diesel cars and utility vehicles offer better mileage and the fuel is more cost-effective, the business class may continue to prefer diesel variants.

While Hyundai Motor sells diesel variants of the I20 premium hatchback and the Verna sedan, General Motors has plans to launch its small car, the Beat, in a diesel version later this year.