In the name of pollution

Fri, Dec 21 03:03 AM

When the Delhi Government announced last week that it may look into banning all diesel cars in the capital due to rising pollution, battlelines were immediately drawn and the auto industry went on the defensive. It appears as if the Delhi government has again hit at the softest target - the auto industry. The latter's retaliation has been on predictable lines, reiterating that diesel is these days cleaner than petrol and that the real fault lies with the oil lobby which does not have the wherewithal to supply low sulphur diesel. It is a fact that there is a roadmap in the form of a fuel policy that envisions Euro IV emissions in Delhi and 10 other cities from 2010 and Euro III in the rest of the country.

The fact also is that the domestic auto industry which today boasts of names like Suzuki, Toyota, Honda, Hyundai, GM, Ford, Fiat, Daimler Chrysler, Renault, Nissan, BMW and Volkswagen, is capable of matching any norm. Already the gap between norms in India and Europe has narrowed down and India has been faster in implementing the norms than the EU.

The world over, the market for diesel is expanding even in countries where it does not make economic sense to have diesel (in UK, diesel is more expensive than petrol). In Western Europe, diesel accounted for almost 50 per cent in 2005 and the percentage has gone up since. That good quality diesel is not available is often admitted even by our oil companies and automakers like Honda and Suzuki have said that it's fuel that is stopping them from bringing in the latest diesel technology to India.

The real problem is the existence of age old vehicles that still ply on our roads and that's where the discussions should logically head to. In fact, all the chaos seemingly against the auto industry would actually do a big service to them. It would be foolish to ban new diesel cars that conform to Euro III emission norms while you allow older cars conforming to no norms or Euro I or II to ply on the roads.

Another interesting statistic makes things clearer. Delhi is the single largest market for cars today with over 900 vehicles being sold everyday. But while the overall industry has grown in double digits over the last three years, Delhi has grown by only 7.6 per cent for petrol and 5.6 per cent for diesel. While the industry has been playing around with these figures to prove that diesel vehicle sales have not gone up substantially, it also shows that it is concerned with this slowdown. If Delhi is slowing down, it could throw the whole growth trajectory off track as no amount of rural penetration can match the potential of a metro. To make matters worse, Delhi also has one of the biggest used car markets with estimates suggesting sales going up by 50 per cent every year.

So it is in the interest of the industry that government looks at phasing out older vehicles to create demand for newer ones. With this goal in mind, pollution comes in as a brilliant tool which serves the purpose of the government. When the public transport system here adopted a green hue with CNG, the Congress government benefited from it. The auto sector's premier industry body SIAM already has a vehicle fleet modernisation proposal that has been gathering dust. This programme talks about phasing out 15 year old cars and two wheelers over three years by encouraging people through incentives like rebate in excise and sales tax and incremental road tax structure (higher taxes for older vehicles).

SIAM's proposal does not seem practical in its current form. It expects a lot from the government (Rs 1,428 crore) and the consumers and does not promise anything from the industry. If the industry cedes a little ground from its own side there can be a win win situation for all. What we may be looking at is, if a company takes its 15-year-old vehicle back, thus replacing the used car market, and the consumer is offered finance at a lower rate for the outstanding amount that he will have to pay for a new car, then it would make more sense for him to go for it.

The banks which are otherwise averse to offering lower interest rates also stand to win in this as they would be getting a whole mass of 'new' consumers who would have otherwise never come to them for car loans. According to estimates, there are 2,36,549 cars which are over 15 years old and if they are phased out then a lot of them would be in need for loans.

Even then there will be people who would be reluctant to do away with their cars and incentives like lower road tax (SIAM also suggests lower insurance charges) would come in handy. There has to be a workable solution with a heady mix of incentives and rebates thrown in so that it does not pinch the customer overly.

Why this is of prime importance for all concerned is because auto companies are investing more and more on their new models and banking on the fact that higher volumes would enable them to reach break even at a suitable time. If sales start to taper off, like they have in Delhi, then everybody has a problem. At the end of the day, the talk about pollution is a handy tool to serve those ends.

sumant.banerji@expressindia.com

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