Maruti's decision to phase out diesel by April 2020 may hasten the end of the road for the fuel

India's largest carmaker Maruti Suzuki India Ltd (MSIL) on Thursday said it will stop selling diesel cars in its portfolio--all seven of them, from April 1, 2020, when the new BS VI fuel economy norms kick in, which will make diesel vehicles significantly more expensive.

"We will stop selling all our diesel cars from April next year as the new fuel economy norms will make diesel cars significantly more expensive. Especially, for small cars with the engine size of less than 1.5 litres, the price will become unviable for customers," said R C Bhargava, Chairman, MSIL.

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Only last week, Maruti introduced a new 1.5 litre indigenously developed diesel engine on its mid-size sedan Ciaz but Bhargava said even that variant will be discontinued. He, however, added that the company would remain open to a rethink if there are enough takers for that variant even after the prices go up post BS VI roll out.

"We are clear that the engine smaller than 1.5 litres will surely be discontinued. We will remain open on the possibility of continuing the 1.5-litre powertrain but only time will tell if there is enough demand for it in the market post-April 2020," he said.

Currently, a number of Maruti's bestselling models like Swift, Dzire, Baleno, Ertiga, Ciaz and its two SUVs Brezza and S Cross have diesel variants. The decision to not upgrade the engine to comply with BS VI norms is likely to be particularly damaging on its SUV portfolio that comes with only the 1.3-litre diesel engine that Maruti sources from Italian carmaker Fiat.

"Even in Europe we have seen diesel sales de-growing after the introduction of Euro VI norms. In the Indian market the impact could be even more accentuated as this is a more price sensitive market," Bhargava added. "Traditionally, there has been a bias towards diesel among SUV buyers but I see no reason why petrol SUV will not be preferred in future. The new age petrol engines have blurred that gap."

Maruti's decision today is also precipitated by a number of events that have taken the sting out of diesel car demand in India. Till 2014, the high differential in the price of diesel and petrol, which peaked at Rs 27.19 per litre in July 2012, made diesel the preferred choice of fuel for customers. Manufacturers were scrambling to launch more and more diesel versions, and those who stuck with only-petrol variants were literally stuck. In 2012-13, for the first time ever, the share of diesel car sales at 58 per cent outstripped that of petrol.

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A combination of rising clamour against pollution--that quickly turned to checking just vehicular pollution as it was easier to regulate--and the fuel losing its edge over petrol on price, resulted in a not so gradual decline in demand for diesel cars. In July 2016, the National Green Tribunal banned all diesel cars which were over 10 years old in the national capital region--the largest market for cars in the country, dealing a body blow to the diesel lobby.

The economics also worked against it with the price difference between the two fuels today at just Rs 6.48 per litre. This is the closest the two fuels have ever come to in terms of price since October 1990. As a result, diesel cars accounted for just about 20 per cent of overall passenger vehicle sales in 2018-19. For Maruti, the share of diesel has come down from 45 per cent in fiscal 2015 to just 23 per cent in fiscal 2019.

The new emission regime in 2020 will only add to that. The difference between BS IV available today and BS VI fuel of 2020 is substantial. BS-VI fuel contains substantially less sulphur--10 parts per million (ppm) as compared to BS-IV's 50 ppm. It can bring down particulate matter emission in diesel cars by 80 per cent. Emission of nitrogen oxide from diesel can be reduced by another 70 per cent and in petrol cars by 25 per cent. Making diesel engines compliant, however, would require additional components like a diesel particulate filter, a diesel oxidation catalyst and an additional component for selective catalyst reduction. This will increase the cost of a diesel engine substantially, between Rs 80,000-200,000.   

With Maruti that commands an over 50 per cent share in the domestic market taking a firm view on diesel, the end of the road for the fuel for personal mobility looks near. 

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