Wednesday, April 13, 2011

Budget of 2011 in India: What could they be thinking?

While one face of the government sulks and spoils, the other dares to act. The budget making exercise this year in India is an evidence of this. There is progressive grassroots decision to discourage polluting diesel cars and encourage public transport and bicycles in India’s capital city of Delhi, which is in sharp contrast to the reactionary non-visionary action at the national level. Anumita Roychowdhury reports from Delhi.

Budget of 2011 in India: Centre dithers. Delhi dares

- Anumita Roychowdhury, Centre for Science and Environment

The city government in Delhi has made the bold plunge to slap additional tax on diesel cars in the city, sanctioned 329 km of BRT corridors, and 4400 new buses and allowed complete waiver of taxes on bicycles in Delhi. But the national government once again avoided hiking taxes on the diesel cars and SUVs and is content to let India dieselise without clean diesel with serious public health consequences. It has also not offered any tax measure to encourage bus transport that provides the bulk of public transport service in the country. .

Yet the national action is crucial and is urgently needed for a nation-wide impact. All cities will have to be enabled and guided to take action on the polluting diesel vehicles that emit more toxic particulates and nitrogen oxides – the key pollutants of concern in Indian cities, and also promote public and non-motorised transport to avert the mobility crisis in Indian cities.

Why national budget is under fire?

Public transport ignored: The new national budget has not proposed any new scheme to support bus transport which meets 40 to 70 per cent of travel needs in our cities; only a few metro lines have been proposed as a cosmetic gesture. It has also ignored further cuts in excise duty on buses. This is urgently needed to cut capital expenditure in cities that are desperate to scale up public transport and are bleeding to meet the capital expenses. It is content to with the only one time grant to the city governments in 2009 as part of the stimulus package to buy buses and a slight reduction in excise tax in the earlier budget. But all cities today are paying enormously in congestion and health costs due to uncontrolled and explosive increase in car traffic.

Encouraging gross misuse of low taxed diesel for luxury use in SUVs and cars: Diesel cars are already 36 per cent of the new car sales and are expected to be half soon in India. It is ironic that while fuel tax differential has been officially justified in the name of agriculture and freight, the rich car owners have benefited more from it. Cars have already become the second biggest user of diesel and beneficiaries of the official fuel tax policy after trucks. It is ironical that the cars use up 15 per cent of the total diesel in the country – compared to 12 per cent by buses and agriculture each, 10 per cent by industry, and 6 per cent by the railways. Various expert reports of the Government of India have already recommended additional taxes on diesel cars to neutralise the effect of low tax diesel fuel. But this has remained unheeded so far.

Tax measures are absolutely necessary to discourage diesel cars until the time clean diesel confirming to the international benchmark (diesel fuel with 10 ppm sulphur used along with advanced emission control system) is made available in India. Health risks associated with conventional diesel emissions are very serious. Some of the deadliest air toxics, also carcinogens, are related to diesel emissions.

Dieselisation is expected to get worse as the recent trends show that the car industry is on an overdrive to introduce more diesel car models even in the small car segments. The combination of cheap diesel and lure of lesser taxes on small cars will make diesel car numbers explode.

It is incomprehensible why the government has decided to continue to support the use of subsidised diesel for luxury consumption. Revenue losses will compound with the increased share of diesel cars and SUVs. In Delhi, for instance, this loss amounts to about Rs 300 crore a year. The market trend clearly shows that diesel is aiding the shift towards bigger cars that drink more fuel. While 85 per cent of petrol cars sold in India have less than 1,200 cc engines, 64 per cent of diesel cars are just under 1,500 cc and the rest of them above. Despite fuel efficiency, bigger engines will always use more fuel and cheaper diesel will encourage people to buy bigger and more powerful cars. This will undermine energy security.

Auto industry defends diesel cars for higher fuel efficiency and lesser carbon emissions. But this is untenable: Diesel cars are more fuel efficient than petrol cars. But diesel fuel has higher carbon content than petrol. If more diesel is burnt encouraged by its cheaper prices and shift towards bigger vehicles and SUVs, more heat-trapping CO2 will escape. Also black carbon emissions from diesel vehicles are several times more heat trapping than CO2. This nullifies fuel efficiency gains. Cheaper diesel fuel also encourages bigger cars, more driving and more fuel guzzling in the rebound.

The ongoing India assessment of the International Council on Clean Transportation shows that the trends can lead to a cumulative loss of 6.5 mtoe of energy between 2010 and 2020. This equates the fuel use of all four-wheeled vehicles in 2006. This defeats the objective of improving India’s energy security.

Other Governments have taken fiscal measures to discourage diesel in cars. In Brazil diesel cars are actively discouraged because of the policy to keep taxes lower on diesel. In Denmark, diesel cars are taxed higher to offset the lower prices of diesel fuel. In China, taxes do not differentiate between petrol and diesel. Sri Lanka has imposed very high duties for diesel cars which is as high as 300 percent. Even in India several official committees have asked for special and additional taxes on diesel cars to neutralise the incentive of cheaper diesel fuel.

Let Delhi show the way

The proactive decision of the Delhi government that has evoked the polluter pay principle to tax diesel cars higher to protect public health is an important step forward and needs support. In fact, a few years ago Delhi government had taken the lead to impose an environment cess on per litre of diesel fuel sold in the city. A dedicated Air Ambience Fund created out of the revenue from this cess is being used to fund the pollution control efforts including fiscal incentives for electric vehicles.

It is greatly commendable therefore that the Delhi government has maintained the momentum and based on the polluter pay principle decided to directly disincentivise diesel cars to protect public health. This must not be allowed to fail on any account under the industry pressure.

Equally visionary is the massive scaling up of budgetary allocation to public transport especially to fund 14 BRT corridors, and the gesture to promote bicycles by removing taxes on them. If these interventions are scaled up and sustained over time Delhi can take the lead to reinvent mobility and set the examples for the rest of the country.

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About the author:

Anumita Roychowdhury is associate director at Centre for Science and
Environment headquartered in New Delhi. She coordinates Policy Research and Advocacy on vehicular pollution in India for the “Centre for Science and Environment” (CSE), New Delhi, India. She has helped build policy campaigns which include phasing in of CNG program in Delhi; advancing implementation of improved fuel quality norms and emissions standards in Delhi; and promoting fiscal policies to improve technology, and awareness campaign on fuel adulteration in Delhi. She co-authored the book “Slow Murder: The Deadly Story of Vehicular Pollution in India” and has contributed to the series on Citizens Report on the State of India’s Environment.

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