Toyota joins chorus for freeing diesel prices

Japanese carmaker Toyota said on Wednesday that the government policy of controlling diesel prices while allowing petrol prices to run rampant is distorting demand in the car market.

Hiroshi Nakagawa, managing director of the company's Indian subsidiary Toyota Kirloskar Motor said the diesel subsidy is leading to a substantial drop in the demand for petrol vehicles. "This is not healthy. We expect the government to take some action."

The government has allowed repeated hikes in petrol prices by officially 'de-controlling' them; but keeps strict control of the prices of other hydrocarbon fuels like diesel, kerosene and gas. Diesel is at least 40 per cent cheaper than petrol at pumps, forcing carmakers in India to make even their small cars with diesel engines.

Nakagawa estimated that the running cost per kilometre for a diesel car is just Rs2.15 per km, compared to Rs5.22 for a petrol-run car.

He said the prices of the fuels should be linked to the international market – "Globally, the common way is that oil follows international market rates."

In unison with virtually all economists, carmakers too have been clamouring for a decontrol of fuel prices –their focus of course being on diesel rather than the other fuels.

Perhaps the first to flag the issue last year was Mahindra & Mahindra – which seemed strange at the time because M&M's mainstay is diesel-powered utility vehicles. However, no major player likes to operate in an artificially distorted market.