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Indian minister walks back plans for higher taxes on diesel vehicles

(Reuters) - India is not planning to levy any new tax on diesel vehicles, the country's transport minister told news channel CNBC-TV18 on Thursday, two days after he warned automakers to reduce diesel production or face higher taxation.

"I am not against diesel and neither are we going to levy any new tax on diesel vehicles," Nitin Gadkari, the federal road transport minister, told the channel.

Gadkari's comments were a marked step back from his speech at an auto industry conference on Tuesday when he warned carmakers to reduce production of diesel vehicles or face higher taxation, causing shares of automakers like automakers Mahindra and Mahindra, Tata Motors and commercial vehicle maker, Ashok Leyland to drop between 2.2% and 2.5%.

In the speech, Gadkari had said he would ask the finance minister for an "additional 10%" goods and services tax on diesel vehicles to tackle problems related to pollution. India currently imposes a 28% tax on diesel vehicles and an additional tax called a cess is levied depending on the engine capacity.

"I was saying it in the spirit that if you don't take it seriously then the government will have to impose a pollution tax on diesel fuel. So before that, you (automakers) have to change your policy," Gadkari told the channel.

India has in recent years promoted electric vehicle (EV)sales with tax incentives, though less than 2% of India's nearly 4 million in car sales last fiscal year were EVs. The government has said it wants EVs to make up 30% of total car sales by 2030.

The number of diesel vehicles in the world's third-largest car market has fallen to 18% from 50% a decade ago, Gadkari said.

India imports 16 trillion rupees ($192.81 billion) of fossil fuels every year and the number was likely to go higher as the country grows, the minister said, adding that this caused heightened pollution in the country.

Pollution is a growing problem across India. Attempts to cut vehicular emissions, reduce fuel imports and curb stubble burning have not yielded great results in a country where the proposed coal power capacity is the highest after China.

Gadkari's comments on Tuesday sparked widespread discussion among auto executives at the Delhi conference, with some describing the move to Reuters as a "bombshell" announcement.

Mercedes India Managing Director Santosh Iyer said many customers still prefer diesel vehicles and any change in tax policies will lead to a shift in automakers' "portfolio strategy".

In his interview on Thursday, Gadkari also spoke of U.S automaker Tesla's proposed entry in to the country, saying "they are welcome. We are waiting for them."

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