Why Maruti might be right in banning diesel cars

Carmaker Maruti Suzuki India's decision to ban diesel vehicles in India may have come as a surprise to many, but the decision seems to be banking on a lot of financial prudence than anything.

India's largest carmaker has seen the share of its diesel cars as part of told cars dip in last few years -- in 2015 the diesel cars contributed 40% to Maruti's auto sales, which has now dipped down to 23%.

The primary reason behind this reduction in the share has been the narrowing gap between the diesel and the petrol prices. Back in 2015, the diesel used to cost almost Rs 25 per litre lesser than petrol. However, as the country de-regulated the fuel prices, the gap between both types of fuel narrowed in.

As of date, diesel and petrol are just Rs 7 per litre apart. As the arbitrage that customers used to enjoy earlier by paying a premium over the diesel cars has now been reduced by almost 72%, the premium of Rs 80,000 - Rs 1,00,000 that car-buyers used to pay for the diesel variants of Maruti cars has become cumbersome over the years.

True to its nature of being pro-active to the needs of customers, Maruti announced that will withdraw all diesel variants of its product portfolio from 1st of April 2020 (deadline for BS-VI emission standards).

Making the new compact diesel engine meet the stringent BS-VI standards would involve a lot of additional components such as diesel particulate filters, more sophisticated catalytic converters, and a significant redesign of several components and sub-systems like EGR (Exhaust Gas Re-circulation) system. All this will lead to a price hike of diesel engined models to a level so substantial that it will no longer be viable, especially in the small car segments that Maruti specialises in. According to the market estimates, the prices of diesel variants of popular hatchback Swift would have shot up to Rs 12 lakh, post-Bharat VI implementation.

Maruti would be better off focusing its resources on introducing CNG, hybrid and electric variants of its popular models as alternatives to diesel variants. And Maruti has already started working on it -- it has come up recently with a Baleno petrol hybrid. The carmaker has diesel hybrids of Ciaz, Ertiga, and S-cross as well, that are expected to be replaced by the petrol hybrids soon.

Though there is a problem: there is no subsidy over the hybrid cars of date. But that disadvantage will be compensated with the fact that hybrid cars are more fuel efficient than others.

So, the move by Maruti can just be a masterstroke. And it's no surprise that the carmaker still controls over 50% market share in the India passenger vehicles despite a gamut of foreign car-makers parking into the Indian markets, following a simple mantra: selling reasonably priced vehicles in a consumption-driven economy dominated by the middle class.