Auto sector takes the rap as Delhi battles foul air

Delhi is gasping for breath but it is not entirely clear if the Supreme Court directive on diesel cars and SUVs will really help the cause.

The Apex court ban on 2,000cc plus diesel cars/SUVs is in force till March-end and it will be interesting to see to what extent emissions will have reduced by that time. While there are no doubts that there are serious issues with the Delhi air, punishing the automobile industry alone may not help the cause.

In the first place, the country already has in place emission norms with plans to tighten them over the next 18 months. All automakers have been complying with these norms as part of a rigorous testing schedule carried out by the Automotive Research Association of India.

The ban on diesel cars/SUVs in Delhi, naturally raises questions on the credibility of these emission and testing standards which have been carefully thought through and executed.

Furthermore, it only reinforces the point that there are serious issues relating to consistency of policy in the auto sector. The latest ban for instance will have its fallout on dealers and vendors — especially those associated with Mercedes-Benz, Mahindra & Mahindra and Toyota Kirloskar Motor. From their point of view, it is not the first time such an ad hoc decision, that can throw product planning schedules out of gear, has been announced.

Case in point For instance, Mercedes-Benz’s diesel cars will now be out of the reckoning for Delhi buyers over the next 100 days. This market, in turn, accounts for a significant component of its sales, which means its projections for 2016 will have to be revised downwards. How its dealers cope with the lull in business till then is the million dollar question. Vendors, likewise, may have to carry forward some inventories and even write off the losses.

M&M, like Mercedes, faces a near rout in Delhi at least for a while since a lion’s share of its SUVs is over 2,000cc. The silver lining perhaps lies in the fact that the Capital is relatively a smaller market for its products. But that is hardly any consolation as the company will have bigger challenges to grapple with in its supply chain.

Reverse gear Multinational automakers are livid and wonder if India is remotely serious about the growth of its industry.

“At one level, there is this big song and dance about Make in India but how can that possibly happen with this kind of an ad hoc approach,” says a top auto industry executive. The angst is understandable given that this is not the first time that such an unpredictable detour has taken place at the drop of a hat.

Over the last few years, automakers have had to contend with changes in excise duty based on the length/engine specifications and have also been coping with a differential pricing regime for fuels for years. This was the time diesel was heavily subsidised and customers gave petrol cars the cold shoulder. Thankfully, this has come to an end with market pricing now in place for both fuels.

The other issue that has raised the hackles of automakers is the decision to focus solely on 2,000cc (and more) diesel vehicles. The Centre had earlier singled this category out for heavier excise duty during the oil price crisis in 2008-09.

At that point, it perhaps made sense to slap a levy as diesel was being retailed at an enormous subsidy to people who could clearly afford to pay more. Today, that logic is no longer applicable especially with petrol now back in favour thanks to the smaller price gap with between petrol and diesel. This discriminatory stance has only fuelled suspicions that suspect lobbying by those who stand to gain from smaller diesel engines.

For the moment, the Supreme Court ban is applicable to Delhi but there is no saying whether other parts of the country will also follow suit. Sure, the Capital is the pivot but it would be naïve to assume that the rest of the country is actually breathing particularly clean air. Will legal intervention be the solution all over again?

For the moment, global automakers are bullish on India largely because markets like Brazil, Russia and South Africa are not in the best shape. China is slowing down and traditionally strong bastions like Europe and the US are flattening out too. Yet, they will have serious reservations about putting more money in India if there is no clarity in policy.

“Eventually, everyone is here to make money and if the going is unpredictable, they will just freeze investments,” says an industry source.

This is something the country cannot afford at this point in time, especially when job creation has been virtually zilch for over a year now. It is only the manufacturing industry that can create the momentum but its participants need to be convinced that policymakers are as serious about the roadmap ahead. The Court is right about cleaning up the foul air in Delhi but holding the auto industry culpable may not be the only solution.

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