Myth 12: The CNG strategy will hurt the poor the most

Has anyone spared a thought for the many taxi and autorickshaw owners who simply have no means either to buy a new vehicle or convert their existing ones? Of course not (The Times of India, March 28, 2001).

Who considers the price paid and still to be paid by the office-goers, workers, the auto drivers, the schoolchildren, the handicapped, and the self-employed? (The Indian Express, May 3, 2001).


Fact

Financial incentives are a must for the CNG strategy to work. The federal government in the US provides 80 per cent of the cost of a basic transit bus and 90 per cent of the incremental cost of a bus running on alternative fuel.

The Society for Indian Automobile Manufacturers (SIAM) requested the Delhi government for financial incentives for buses in September, 2000, but no response has been received.

The state government can subsidise the capital cost of CNG-mode public transport vehicles without incurring any charge on its existing budget.

Increasing the price of diesel to that of Mumbai would have netted the government over Rs. 450 crore in one year. A one-time increase of Rs. 7,500 in the road tax for cars and Rs. 2,000 for two-wheelers will fetch the Delhi government of Rs. 68 crore every year. In this way, private vehicle owners can cross-subsidise the users of public transport who make a much better use of road space.

As the key barrier to the CNG technology is its high capital cost, governments across the world have provided fiscal incentives for the introduction of natural gas vehicles recognising their environmental and public health value. For instance, the federal government in the US provides 80 per cent of the cost of a basic transit bus and 90 per cent of the incremental cost of a bus running on alternative fuel. Thus, if a bus costs $35,000, the local share is just about 10 per cent which can be amortised over the life of a vehicle which is 12 years or 500,000 miles (805,000 kilometres). In Italy, too, CNG/LPG vehicles get a subsidy. A major incentive for users of CNG/LPG vehicles is that only they are allowed to ply on a bad pollution day when there is a pollution emergency alert. In several countries this is a tool used by governments to push vehicle owners to go in for CNG vehicles. But a pollution emergency system does not exist in India.

While so much noise has been created over the high cost of CNG buses — about Rs 16 lakh, all was quiet when Delhi government rolled out specially designed air conditioned urban buses in June this year costing a staggering Rs 54 lakh. It defies reason why focus is shifting to get even more expensive buses when Delhi is still struggling to get comparatively cheaper CNG buses.
Subsidies given by Delhi government to autos and taxis

Following the Supreme Court order of July 28, 1998, the Delhi government offered certain forms of financial assistance to auto and taxi owners to switch over to CNG (Cabinet Decision No. 503 dated 11.4.00). Both were given a complete sales tax exemption. In addition, autos were given a six per cent subsidy on interest on loans from the Delhi Finance Corporation (DFC) and taxis a four per cent subsidy on interest on loans. But according to the Delhi Auto Sangh, no new notification has been issued after March 31, 2001. The Society for Indian Automobile Manufacturers (SIAM) requested the Delhi government for financial incentives for buses in September, 2000 but no response has been received.

According to Ganesh Budhhiraja, President of Delhi Auto Sangh, an auto drivers union in the capital, because there is no incentive scheme available for autos from the government, as new notification for financial incentives and subsidies has not been issued after March 31, 2001 several auto owners are taking advantage of a scheme of replacement offered by Bajaj Auto Ltd to replace old petrol autos. While a CNG auto costs Rs. 1,43,000 on road, an auto owner who turns in the old auto just has to pay Rs. 89,000.85

Possible sources of revenue for providing subsidies

The state government can subsidise the capital cost of CNG-mode public transport vehicles without incurring any charge on its existing budget.

According to the National Capital Region Planning Board (NCRPB), a key reason for the rapid growth of Delhi is the fact that even though it has the highest per capita income in the country, it has an extremely low tax regime and thus offers high job opportunities. As a NCRPB document puts it, “The phenomenal physical and economic growth of Delhi and the underdevelopment of the area outside Delhi, or, to be more specific, outside the Delhi Metropolitan area, is primarily a problem of relationship rather than a problem of scarcity. To give an example, the total journey time from Delhi to the farthest towns in the region is so short that no big centre of transportation and trading activities have developed in the outer ring of NCR. The entire region outside the Delhi Metropolitan Area is thus registering a relatively slow growth rate leading to a lop-sided development of the region characterised by the ‘Metropolis-Satellite’ syndrome, where part of the economic surplus of the periphery is extracted by the core and whatever development takes place in the periphery, mostly reflects the expanding needs of the core. Under this phenomenon, the region rather than adding or accelerating, went on supporting the growth and prosperity of Delhi whereby setting an uneven system tied up in a chain of ‘Centre-Periphery’ relationship. This relationship, helped to raise the income levels in Delhi. Delhi with per capita income of Rs. 19,779 at current prices (1995-96), as compared to all India per capita income of Rs 9,321, has the distinction of having highest per capita income in the country. Thus, ample job opportunities couples with higher wages and earnings provide enough opportunities for the people to migrate and settle in Delhi.”86

“It has been strongly argued at various forums that whereas there is a reasonable amount of uniformity in tax and tariff rates among the neighbouring States, the effective rates of tax and tariff are substantially lower in Delhi. These differentials in tax rates with added advantage of better social and physical infrastructure in Delhi have greatly influenced in past the decision making regarding location of industry and trade. The articles where the margin of profit is low and transportation costs are not so high, such variations result in attracting buyers from far-off places,” points out the report.87

Diesel prices

The low rate of taxation in Delhi is also reflected in the transport sector. It has a diesel price not only lower than other metros but also lower than neighbouring Uttar Pradesh which is much poorer and has lower quality diesel to sell (see table 23: Uneven pricing).

Road taxes

Not only are fuel prices lower in Delhi, even road taxes are very low compared to other metros even though Delhi has more vehicles than Mumbai, Chennai and Kolkata combined (see table 24: Chennai: Tax structure, table 25: Different strokes, and table 26: Different strokes). The road tax for cars owned by individuals in Chennai is not only twice that of Delhi but the tax for cars owned by companies is further increased. In Mumbai, the road tax is not the same for all vehicles but is a percentage of their price. Even in the case of scooters, the road tax is relatively on the lower side in Delhi.

Given the fact that these private modes of transport occupy a disproportionate amount of space compared to the passenger-trips they provide when compared to buses, their road tax should be increased. By taking a one-time tax, the transport departments not only cannot check the vehicles every year, but also cannot keep on increasing the road tax according to age which will encourage owners to phase out older and polluting vehicles. In Japan, road taxes rise so rapidly that after 5-6 years everyone buys a new car leading to a huge market worldwide in second-hand Japanese cars which is threatening the Indian auto industry with import regulations becoming weaker and weaker.

Potential for raising revenue

There are numerous options for raising funds for subsidising the conversion of the city public transport fleet to CNG to a point that there will be no need to increase public transport rates.

In 1998-99, the total sale of diesel was 1,451 million litres. An additional sales tax of Re 1 in 1999 and 2000 would have fetched about Rs 300 crore. This sum is so large that the government could have even given away more than 3,000 retrofitted buses free. Such a tax can still be levied to subsidise the conversion to CNG. Increasing the price of diesel to that of Mumbai would have netted the government over Rs. 450 crore in one year. With buses and taxis which run on diesel moving over to CNG, sales of diesel in Delhi will definitely come down but there will still be a substantial demand for diesel by goods vehicles and generator sets. Moreover, the increased price difference between diesel and CNG will make the latter even more attractive.

Every year, some 60,000 cars and 115,000 two-wheelers get added to Delhi’s fleet of vehicles. Even a one-time increase of Rs. 7,500 in the road tax for cars and Rs. 2,000 for two-wheelers will fetch the Delhi government Rs. 45 crore and Rs. 23 crore, respectively — a total of Rs. 68 crore every year. In this way, private vehicle owners can cross-subsidise the users of public transport who make a much better use of road space. According to the DTC, buses carry 50 per cent of the passenger load while occupying only one per cent of the road space.

There is, thus, really no problem in financing the switchover to CNG. The government can easily provide people with a subsidy of upto Rs. 200-300 crore without losing its existing revenue. For the short-term it can even take loans to finance the transformation which it can recover from increased taxes over time. Using the polluter pays principle, taxes could be levied more on private vehicle owners, users of gensets and those who use polluting fuels.

The government should provide effective fiscal incentives to the operators which are anywhere between 20-30 per cent of the total cost of conversion or of buying a new bus. The government is definitely in a position to do this.

Price of diesel in Delhi is not only lower than other metros but also lower than neighbouring states where the diesel sold is much poorer in quality