July 28, 2010

life in general & financial markets: (part 1) india's obsession with diesel cars

(part 2 dated 14 november 2010 is here)

In India, ugly corruption among many politicians and bureaucrats and bribing by powerful lobbying car manufacturers, particularly the ones who also manufacture trucks and buses, has led to a dangerous obsession with diesel, a fuel that pollutes much more than any other fuel. Diesel fuel is priced artificially by government-controlled oil companies at a level much lower than petrol due to the dirty lobbying by diesel car manufactuers.

Looking at the pampering being given by India's government to diesel fuel, even supposedly-respected international car companies are joining the nefarious diesel bandwagon. Toyota's Indian subsidiary launched a diesel version of its Corolla Altis sedan pricing it at between Rs 11 lakh (Rs 1.1 million) and Rs 14 lakh (Rs 1.4 million). 

The Indian government is ugly and bad, but what about the affluent consumers of India? Should they be buying diesel cars, and particularly expensive diesel sedans?

Diesel vehicles pollute the environment, primarily through higher emissions of nitrogen oxides and particulate matter, more than petrol vehicles and definitely far higher than CNG vehicles. In India, diesel prices are around 25 per cent cheaper than petrol and their mileage about 90-100 per cent more than petrol. Should this be the motivation for someone having Rs 14 lakh to shell out to buy a car, any car? Corolla Altis claims to give a mileage of about 21 kms a litre. The petrol Altis gives about 11 kms a litre mileage.

Most of those who can afford a Rs 14 lakh car will be staying in up-market city areas, where homes are far more expensive and very near to their workplaces. Let's assume a two-way distance of maximum 40 kms on workdays for such car commuters. To factor in long-distance weekend travel, let's assume a 40 kms per day travel for all days  of a year. That works out to 14,600 kms in a year. Covering this distance at 21 kms mileage, the diesel Altis will burn 695 litres of diesel and if you are in Bombay it will cost you Rs 29,200 at Rs 42 a litre for diesel. Similarly, at 11 kms mileage, the petrol Altis will burn 1,216 litres of petrol and cost a Bombayite Rs 68,100 at Rs 56 a litre of petrol.

The savings for the diesel car owner: Rs 38,900 a year. How much great this annual savings really is for someone who pays Rs 14 lakh to buy a car? Just 2.78 per cent. The question still remains whether 695 litres of diesel or 1,216 litres of petrol pollutes the environment more. Environmentalists express more concern at the damaging properties of nitrogen oxides emissions of diesel vehicles than they do for the CO2 emissions of petrol vehicles. Diesel prices are still kept subsidised as compared to petrol, otherwise the savings in a diesel car will be much lower and less litres of diesel consumed adding to less pollution in the air. In fact, CNG cars works out as the best alternative, both in terms of cost of running and harmful emissions released.

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