The minister added that he will present this proposal to the finance minister later in the day.
On Tuesday, the Union road transport minister stated that he intends to suggest an additional 10% tax on diesel vehicles, cautioning automakers about even more substantial levies in the future to encourage them to move away from diesel and reduce fuel emissions and pollution.
Nitin Gadkari made these remarks at the Society of Indian Automobile Manufacturers (SIAM) annual conference in New Delhi, where executives from Tata Motors, Mahindra and Mahindra, Maruti Suzuki, and foreign carmakers like Mercedes and Volkswagen had gathered.
Mr. Gadkari mentioned that he would discuss the matter with the finance minister later on Tuesday, proposing an "additional 10%" goods and services tax on diesel vehicles to address pollution concerns. Currently, India imposes a 28% tax, and additional "cess" is applied based on the vehicles' engine capacity.
He stated at the conference, "Say goodbye to diesel soon, otherwise, we will increase the tax so significantly that selling these vehicles will become challenging."
"We need to transition away from petrol and diesel promptly and move toward a path of being pollution-free... Companies should diversify as soon as possible," he warned automakers.
Mr. Gadkari's comments generated extensive discussion among auto executives at the Delhi conference, with some describing the move to Reuters as a "shocking" announcement. Santosh Iyer, managing director of Mercedes India, mentioned that many customers still prefer diesel vehicles, and any changes in tax policies will affect automakers' "portfolio strategy."
He said, "We will require about six months to adjust our production planning processes, but we can adapt based on demand."
Pollution is a growing concern throughout India. Efforts to reduce vehicle emissions, decrease fuel imports, and control crop residue burning have not yielded significant results in a country where proposed coal power capacity is second only to China.
Later on, the minister posted on the social media platform X, formerly Twitter, that the proposal to raise taxes was not "currently under active consideration by the government."
Shares of automakers such as Mahindra and Mahindra, Tata Motors, and commercial vehicle manufacturer Ashok Leyland dropped by 2.2% to 2.5%.
The finance ministry did not immediately respond to requests for comments.
Mr. Gadkari has issued warnings at past SIAM conferences. In 2017, he told auto executives to transition to electric vehicles (EVs), saying, "I am going to do this, whether you like it or not. And I am not going to ask you. I will bulldoze it."
In recent years, India has promoted electric vehicle sales with tax incentives, although less than 2% of India's nearly 4 million car sales last fiscal year were EVs. The government has set a target for EVs to comprise 30% of total car sales by 2030.
Gadkari stated that the proportion of diesel vehicles in the world's third-largest car market has decreased from 50% a decade ago to 18%. He warned that just as India enforced stricter fuel emission standards despite opposition from the industry, it will also increase taxes to phase out diesel vehicles.
Veejay Ram Nakra, CEO of the automotive division of Mahindra and Mahindra, told TV news channel ET Now that any change in the duty structure "will certainly impact sales volume."
Ashok Leyland Chief Executive Shenu Agarwal told CNBC-TV18 that instead of taxation, more incentives should be provided for electric, hydrogen, and other alternative fuels.
Between April 2022 and March 2023, about 962,000 commercial vehicles were sold in India, marking a 34% increase from the previous year, while passenger vehicle sales rose by 27% to 3.9 million during the same period.
"If implemented, this would be a significant setback for commercial vehicle manufacturers, potentially causing a decline in the segment," said Amit Hiranandani, an analyst at brokerage SMIFS.
Photo Credit: PTI