In a move to control pollution, the Indian government is pondering over imposing an additional 10% tax on diesel vehicles. If approved, this could profoundly affect India’s third-largest car market.

What Happened: A Reuters report on Sunday revealed that India’s Road Transport Minister Nitin Gadkari plans to suggest an extra tax on diesel engine vehicles. The primary objective is to curtail pollution induced by diesel vehicles in the domestic car market.

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During a convention in New Delhi, Gadkari alerted automobile manufacturers to brace themselves for a future devoid of diesel. He stated, “Say goodbye to diesel soon, otherwise we will increase so much tax that it will become difficult for you to sell these vehicles.”

The minister’s statement led to a drop in shares of Indian automakers Tata Motors, Mahindra and Mahindra, and Ashok Leyland, which plunged between 2.5% and 4%.

Why It Matters: Diesel vehicles are one of the significant contributors to air pollution in India. The proposed tax on these vehicles is part of the government’s broader plan to promote electric vehicles and reduce dependency on fossil fuels. The move could accelerate the transition to cleaner energy sources in the auto sector.

However, it could also put pressure on automakers who are already grappling with the effects of the pandemic and slow sales. The tax, if implemented, could potentially lead to an increase in vehicle prices, impacting consumers, and could slow down the recovery of the auto industry.

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