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BW Businessworld

BS-IV: Clean But Confusing?

New emission norms are coming into play from 1 April, 2017. A look at what happens to the existing BS-III compliant vehicles and where the industry stands

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There is no deny-ing that the contribution of automobiles in depleting air quality is alarming. In February last year, the union government mandated that from April 1, 2016 all new vehicle models sold in the country have to be Bharat Stage IV (BS-IV) compliant while the remaining models can be upgraded by March 31, 2017. Despite the ample time provided by the government for the implementation of the new norms, confusion prevails within the automobile industry on what should be done with the inventory which is BS-III compliant.

Rajiv Bajaj, MD of Bajaj Auto has clearly stated that if manufacturers are given amnesty to sell Bharat Stage III (BS-III) vehicles even after the April 1 deadline then the same industry will refuse to take seriously the BS-VI deadline of April 1, 2020, too, thereby defeating the very purpose of having a cleaner environment. On the other hand, most players and the industry body, Society of Indian Automobile Manufacturers (SIAM), are asking for an extension of the deadline to clear the existing stocks. Based on European regulations, BS emission standards were introduced in the year 2000 by the Central government to regulate the output of air pollutants from internal combustion engine equipment, including motor vehicles.

Different Voices
SIAM has claimed that the time given to the industry to exhaust its BS-III stock of vehicles is insufficient as there exists high inventory levels within the industry, lower demand due to demonetisation and notification of the Ministry of Road Transport and Highways (MoRTH) for allowing sale of old stock beyond the cut-off date. These are the reasons why the industry needs more time.

Bajaj, at a conference in Mumbai last month, said, “If there is any granting of amnesty our submission is that those who have done it on time are at a disadvantage and those who have chosen to be complacent or who are perhaps, incompetent or perhaps, a combination of both, are going to keep selling the more polluting stuff for longer at lower prices. Obviously, this is not fair.”

SIAM, however, in a statement on March 8, said that domestic automobile industry has not sought any deferment or delay in the implementation of BS-IV emission norm and it is fully geared up for production of such vehicles. Vinod Dasari, President of SIAM, said, “Contrary to the misinformation being perpetuated by certain sections of the society, especially environmental activists, the auto industry is fully committed to commence manufacturing of BS-IV vehicles from April 1 across the country.”

Pawan Goenka, MD of Mahindra and Mahindra, said it is not a question of just the number of days or weeks of inventory with a manufacturer since this has an ageing process. “We cannot control or force dealers to clear old inventory on a given date. After all, you need customers to buy the vehicles,” saidGoenka. Hero MotorCorp, which according to some reports has one of the largest pileups of BS-III compliant two-wheelers on March 1, said, “Majority of Hero two-wheelers had already been made BS-IV compliant quite some time back and the company has fully transitioned to produce only BS-IV vehicles across the range from today.”

Kumar Kandaswami, Partner, Deloitte Touche Tohmatsu India said that a lot of manufacturers had assumed that vehicles manufactured till April 1, 2017 would be allowed to be sold. “However, few industry players don’t want to get their BS-III compliant vehicles registered after the deadline,” said Kandaswami.

Get Ready To Pay More
Change in the emission norms plus upgrading safety features and increase in commodity price is expected to raise the price of vehicles. Goenka believes that price hikes could be in the range of Rs 15,000-20,000 for diesel passenger vehicles going up to Rs 1 lakh for trucks. “And then you have commodity prices which are on the rise, especially during the last three months and could impact pricing to the tune of 2-4 per cent,” said Goenka.

The price of BS-IV compliant two-wheelers is expected to be higher by Rs 1,500 per vehicle than the BS-III vehicles of the same models. According to Bajaj, for two and three-wheelers, the price increase ranges between Rs 1,000 and Rs 7,000.

Anuj Kathuria, President — Global Trucks, Ashok Leyland, in a recent interview said, “The price rise will be 5-10 per cent. We had regulations like the ABS and Speed Limiting Device coming in last year. There was also a notification that air-conditioning would become mandatory.” The investment made by OEMs is likely to be endured by the final consumers. Kandaswami of Deloitte said, “Whenever a new norm is put into place, prices go up in the short term, but it settles up in the future.”

Inventory Pile Up
Whenever the BS standards were upgraded in the past, MoRTH had permitted sales of vehicles which fulfilled the earlier norm and were in stock. However, this time there is no clear reference in the MoRTH notification regarding what should be done with the earlier inventory. SIAM estimates that 25,000 passenger cars, 75,000 trucks and buses, 45,000 three-wheelers and 750,000 two-wheelers are likely to be left with manufacturers and dealers when the deadline is reached.

Nitesh Sharma, an analyst at Phillip Capital India, is reported to havce said: “We expect margins for all two-wheeler companies to be under pressure at least for the next two quarters as a weak market prevents them from passing on the entire cost hike in one shot,”

To clear the confusion and address the industry concerns, the ministry of MoRTH has arranged a meeting of all stakeholders on 20 March to discuss the matter.