Increased VAT on diesel will impact the drive against pollution by increasing the smuggling of inferior quality of the fuel from neighbouring states Haryana and UP where it will be cheaper due to lower state levy and reduce sales at petrol pumps in the capital.

The revised VAT will make diesel in Delhi cost Rs 3.37 a litre more than what it sells for in Haryana and approximately Rs 2 a litre more than UP, according to Ajay Bansal, general secretary of Federation of All India Petroleum Traders. The dealers are considering downing shutters as a mark of protest and will take a call at a meeting on Tuesday.

VAT means death knell for Delhi dealers who have lost 70% of sales to the neighbouring states in the last two years. With the new rate, the price difference with Haryana has jumped three times from Re 1.

What is the alternative for us... At this rate, we will go out of business soon, Bansal said.

At present, some 1,200kl (kilolitres) of diesel is sold daily through 408 petrol pumps in the city. Bansal fears that this quantity will fall sharply now as business will get diverted to neighbouring states and make petrol pumps in Delhi unviable.

Trucks and vehicles will top up in these states, where inferior quality fuel is sold, before entering the city. This will severely impact efforts to check pollution. You will also see cheaper and lower grade of diesel being smuggled into the city, which will increase once Euro-IV fuel is introduced in Delhi from April 1, Bansal said.