Nitin Gadkari wants Nirmala Sitharaman to impose an additional 10% GST on diesel vehicles

Union Minister Nitin Gadkari plans to request Finance Minister Nirmala Sitharaman to impose an additional 10 percent goods and services tax (GST) on diesel engines and vehicles. Speaking at the 63rd Society of Indian Automobile Manufacturers (SIAM) Convention, the Minister for Road Transport and Highways said, "I am requesting the Finance Minister to impose an additional 10 percent GST on diesel engines/vehicles. This is the only way to phase out diesel vehicles."

Gadkari said he had drafted a letter and intends to meet Finance Minister Nirmala Sitharaman on Tuesday, September 12, to request the GST hike.

He went on to warn that the government would increase taxes so much that it would become difficult for companies to sell diesel vehicles. "Reduce diesel vehicle production or else I will increase tax," Gadkari said.

Following Gadkari's remarks, shares of automakers and oil marketing companies reacted negatively.

Ashok Leyland, Tata Motors and Mahindra & Mahindra, which produce diesel vehicles, fell as much as 2.5 percent.

Shares of tractor manufacturing companies such as Swaraj Engines and Escorts Kubota were also down nearly 3 percent.

Shares of oil marketing companies like Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL) and Indian Oil (IOC) also fell to the day's low, trading with losses between 3 percent and 4 percent.

It is pertinent to note that a formal proposal has not been moved yet and the GST Council will have to take a call if such a proposal is moved.

In a tweet, Gadkari clarified: "It is essential to clarify that there is no such proposal currently under active consideration by the government. In line with our commitments to achieve Carbon Net Zero by 2070 and to reduce air pollution levels caused by hazardous fuels like diesel, as well as the rapid growth in automobile sales, it is imperative to actively embrace cleaner and greener alternative fuels. These fuels should be import substitutes, cost-effective, indigenous, and pollution-free."

Speaking to CNBC-TV18 after Gadkari's speech, SIAM President and the MD-CEO of VE Commercial Vehicles Ltd. Vinod Aggarwal clarified that the minister was only expressing an intention to urge the automobile industry towards renewable and electric fuels.

"He has already clarified that there is no proposal yet," Aggarwal said.

He added that any additional taxation would not fare well for the industry and that there is a need for an ecosystem that supports electric, alternative and biofuels.

Aggarwal, during the convention, highlighted that there is stress in the entry-level car and two-wheeler segment. "The industry is now worth over Rs 12 lakh crore. Growth in the industry can be better if issues at the entry-level are sorted out," he said.

At the SIAM event, Gadkari emphasised the growing focus on biofuels and alternative fuels, noting that this is a top priority as India joined the Global Biofuels Alliance during the G20 Summit.

"India imports 89 percent of crude oil, which is a significant challenge. Therefore, Prime Minister Narendra Modi has given the highest priority to alternate and biofuels," he said.

Gadkari reiterated his stance on phasing out diesel engines and stated that it is a hazardous fuel that increases the import bill. "Diesel has to be phased out one way or another. The industry must take the initiative. Please say bye-bye to diesel or diesel vehicles will face the same consequences as BSIV," he said.

He asked the industry why buses and trucks can't run on ethanol all the while complimenting them for increasing focus on alternate fuels and electric vehicles.

"Seven years ago, I told companies to transition to electric vehicles, those who haven't done so have seen a drop in market share today. Appropriate decision and timing are very important for the auto industry," he said.

The minister also urged the industry to give concessions for vehicle scrapping and requested the finance ministry to offer some concessions.

Prime Minister Narendra Modi also sent a message to kickstart the 63rd annual convention of the SIAM. In his message, the PM emphasised the need to develop a mobility ecosystem that is sustainable and in harmony with the environment.

"Environmentally-conscious and economically viable mobility is the future," Modi wrote.

He pointed out the Indian auto industry's efforts towards decarbonisation and alternative technologies and fuels as an example of reducing carbon emissions and the country's dependence on oil imports.

"The period till the year 2047, when we celebrate 100 years ofindependence, is an opportune time to realise the vision of building a strong, sustainable, self-reliant and developed India," the prime minister said.