India's Diesel Passenger Vehicle Market: Sales Are Shaken by Unstable Fuel Regulations
- India is a leading global diesel vehicle market. However, diesel vehicle share of the overall market significantly declined in the past 2-3 years largely due to revised fuel regulations. Therefore Diesel vehicle share in the passenger vehicle market sharply increased from 36% in 2010 to 58% in 2012. However, the price gap between gasoline and diesel fuel shrank, diesel vehicle share began to decline, dropping to 48% in 2014. Ultimately, India announced to end the price control of diesel fuel in October 2014. For this reason, fuel prices now depend on market conditions which also strongly affect demand in the automobile market. However, recently, the gap between gasoline and diesel fuel is widening again in the favor of diesel fuel, aiding the sales of diesel vehicles.
- Naturally, demand structure is also influenced by environmental regulations and preferential measures. A hybrid and electric vehicle promotional measure called FAME India (Faster Adoption and Manufacturing of Electric Vehicles) was introduced in March 2015. Moreover, within a few years, Euro 5 emission regulation is forecast to be introduced in large cities.
- Apart from the increasing number of negative factors which tarnish the image of diesel vehicles, new fuel measures make it difficult to see the future direction of demand. However, diesel vehicle share in the passenger vehicle market is expected to remain around 40-50 percent. It is also anticipated that fuel type will be increasingly taken into consideration depending on usage conditions. Emphasis is expected to gradually shift toward the selection of engines and fuels taking into various factors such as driving in congested cities, long-distance commuting and commercial use.
- Regarding carmakers, trend-setter Maruti Suzuki launched a newly-developed 0.8L diesel engine and combined a 1.3L diesel engine with a self-developed mild hybrid system in 2015, increasing the selection of diesel models in an effort to boost demand.
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