We should be pricing cars and bikes higher, not petrol

The petrol bomb - when the UPA suddenly discovered that oil companies may be losing big money and raised prices by a hefty amount on Wednesday - is a red herring. It takes the debate away from the core issue of India’s larger failure in fashioning a sensible public transport policy.

Petrol has become a sensitive political commodity not because the aam aadmi has enough money to own cars or two-wheelers, but because a deliberately flawed policy has made it so.

Here’s a counter-intuitive idea: we should be pricing cars and two-wheelers higher, not petrol.

In a nation of 1.21 billion people, cars and two-wheelers should not be privileged over public transport. But, thanks to the lobbying powers of the automobile majors, the Indian government has repeatedly succumbed to the lure of making India an auto hub at the cost of public transport.

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A government ostensibly run for the aam aadmi is rooting for non-aam modes of transport.

From the launch of the Maruti in the early 1980s to the latest Audis and BMWs that have become status symbols in urban India, policy has been hijacked by the wrong ideas and the wrong people. We need a people’s car like Maruti only when more than half the population can afford one; we need Beamers like a hole in the head.

[caption id=“attachment_319916” align=“alignleft” width=“380” caption=“What India really needs is a policy that clearly favours public transport over private. Reuters”]  [/caption]

What India really needs is a policy that clearly favours public transport over private. But such is the fascination for cars, that we hesitate to subsidise public transport, and are willing to spend Rs 1,40,000 crore in subsidising petro-fuels and gas (this was our effective subsidy bill in 2011-12).

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Now compare this with the Delhi Metro’s Phase 1 cost of Rs 10,000-and-odd crore. Quite clearly, if we abandon the petroleum subsidies, we can subsidise public transport in all our metros and cities. This kind of subsidy would not dent the public exchequer much since it would be financed from higher taxation of private and personal transport.

Instead, consider how we have compounded our problems by privileging private transport.

As we noted in an earlier _Firstpost_ article, between two-wheelers and four-wheelers (cars and SUVs), India puts out over 14 million personal transport vehicles every year. This means over 1.1 percent of India’s population is buying its own set of wheels every year. But this is not an adequate way of analysing the problem. Assuming a household of five, it means 5 percent of India is shifting to private transport every year.

We are privatising our transport preferences and compounding our economic woes at the same time.

In Mumbai, and most metropolitan cities, municipal corporations are unable to maintain roads in line with the growth in the automobile population, making driving a stressful and hazardous affair even for those who can afford it.

While no one actually questions the need for much bigger investment in public transport, the policy stance adopted actually ends up promoting private transport at the cost of public ones.

This is how policy discriminates in favour of private transport.

One, on the plea that we need to move towards a unified value-added tax system, duties on cars and two-wheelers have been consistently brought down over the last decade.

Two, most cities prefer to levy a one-time tax at the time the vehicle is bought on the ground that this is simpler to administer. This is economically unsound, since most vehicles are used for at least five years, and sometimes for more than a decade or even 15 years. Mumbai’s Premier Padminis and Kolkata’s and Delhi’s ubiquitous Ambassador taxis, manufactured in the last century, are still on the roads. The one-time vehicle tax is thus regressive - and pro-rich.

Three, two-wheelers are often levied a lower tax on the ground that they are driven by the middle class. However, the fact is that two mobikes occupy as much road space as a car when in motion - especially given their faster speeds. In Mumbai, two-wheelers face no city entry tolls - again, for no economic reason.

Four, the sheer growth in private vehicular traffic makes mass public transport systems less viable. When you build metros in cities choked with cars and bikes, the cost of building a metro goes up since there is less space and time available for digging and construction during daytime. Metro projects invariably exceed cost estimates for this reason. Put another way, private transport is making public transport unviable. Like Gresham’s law, which says bad money drives good money out of circulation, bad private vehicles are (essentially) driving good public vehicles off the road.

The numbers show it: In the last 50 years, the share of public transport in India’s total automobile fleet has fallen from 11 percent to less than 1 percent.

So what is the remedy?

In order to promote public transport, five things are vital. Automobile taxes and other charges should be annual, and not one-time. The excise and sales taxes also need to be significantly higher. Conversely, taxes on buses and people carriers of various sizes should be at the lowest taxation slabs.

• Cars should be taxed based on the number of city miles they run, or the number of crowded areas they ply in. RFID (radio frequency ID) chips implanted in cars can tell you how many miles a car has run every month and road charges should be levied like electricity bills every month depending on usage. The principle: the more road you use, the more you pay. This would penalise excess use of cars - and help fund public transport.

• Taxation should be inversely related to fuel efficiency and polluting potential. The higher the fuel-efficiency, the lower the tax. The higher the pollution, the higher the tax.

• Annual taxation should rise during the life of a vehicle. Taxes should vary depending on the age of the vehicle - a lower tax for vehicles in the 0-3 years range, a bit higher for the next three years, and much higher after that. After 10 years, all vehicles should be scrapped or retested for pollution and minimum fuel-efficiency. This policy, combined with tax rebates for scrapping, will mitigate any reduction in automobile demand due to higher taxation.

• In overcrowded metros with low road ratios (Mumbai, for example), cars and two-wheelers should be banned during peak hours on the main trunk routes. Car usage should be restricted to, says, 8pm to 8am (the actual timings could vary depending on road demand), with public transport getting pride of passage during the workday. This policy should be preceded by a very large induction of buses of various sizes to cater to every need: AC buses, regular buses, standees-only buses for short distances, minibuses, and minivans (for low-traffic graveyard shift hours). A Singapore-like system of auctioning car permits in metros with low road space would restrict car purchases to only those who really need it.

Let’s be clear: if we get our public transport policy right, the public would make little fuss over the price of petrol.

(Editor’s note: The second half of this story has been partly rehashed from an earlier article published in Firstpost because we believe it is equally relevant now.)