- Government brought forward stricter vehicle emission rules
- India's top court imposed temporary ban on large diesel cars
Behind the glitzy song-and-dance sequences at the biennial Delhi Auto Expo, executives from Toyota Motor Corp. to Maruti Suzuki India Ltd. are expressing concern about sudden changes in regulation.
In December, India’s top court banned the sale of diesel vehicles with engines 2 liters or larger through March. A month later, the government brought forward stricter emission rules by four years. Together with other measures restricting vehicle use, the moves represent the most concerted effort by regulators to address popular discontent with the hazardous smog that blankets the country’s capital. They were also imposed without prior consultation with automakers.
“Any surprises are never good for the industry,” R. C. Bhargava, chairman of Maruti Suzuki India Ltd., said in a telephone interview on Wednesday. “It means investments become uncertain and everybody loses because of that.”
The calls for a stable regulatory environment come as Prime Minister Narendra Modi seeks to woo global manufacturers to invest in his “Make in India” campaign. India may overtake Germany and Japan to become the world’s third-biggest auto market in 2019, IHS Automotive estimates. Carmakers have reacted to the rule changes by introducing smaller engines or gasoline options to counter diesel restrictions.
Toyota began developing its new Innova multipurpose vehicle almost four years ago, with a new engine to be manufactured locally, only for diesel to be banned “at the last moment,” said Naomi Ishii, managing director of Toyota’s India unit. “If the diesel ban continues, we’ll have to introduce petrol variants for Innova and Fortuner, since about 80 percent of the sales in Delhi are for these models.”
Mahindra & Mahindra Ltd., the country’s biggest SUV maker, last month introduced a smaller engine for two of its most popular models. Fiat Chrysler Automobiles NV’s Jeep unit said Wednesday it will follow up the introduction of its diesel-powered SUVs in India in the middle of this year with gasoline-engine options.
While small cars in India tend to be gasoline-powered, a sharp difference in fuel prices led customers to shift to diesel. Demand for gasoline cars was revived after the government scrapped subsidies on diesel at the end of 2014.
Renault SA says it now plans to offer cars priced under 700,000 rupees ($10,300) with only gasoline engines, offering diesel as an option on more expensive models.
The regulatory changes led to consumers being uncertain about whether there will be an outright ban on diesel, or if resale values will fall, said Jnaneswar Sen, senior vice president at Honda’s local unit.
“In such an uncertain environment, we have to hedge bets, which means you become inefficient,” Sen said.
Complying with the changes can be done, but at a cost, said Nigel Harris, president of Ford’s India unit. “When you get overnight policy changes, it’s pretty disturbing,” he said.
In January, the Supreme Court maintained its ban on diesel-engine cars, turning down a plea for relief made by Daimler AG’s Mercedes-Benz, Toyota and Mahindra. The same month, India’s Transport Minister Nitin Gadkari reiterated that the government will stick to its decision of implementing Bharat Stage VI regulations, equivalent to the European Union’s Euro 6 emission norms, by April 2020.
Transport Minister Nitin Gadkari, who attended the opening ceremony for the car show, said he hoped the auto industry will develop solutions to meet the tighter emissions norms and pledged to ensure the supply of the higher-grade fuel by 2020.
“We need some sort of stable regime because if something has to be decided, given the huge investment and lead time, we need to know what will be the long-term return on investment,” Maruti’s Bhargava said. “Things like the diesel ban affect sentiment and demand across the industry and we don’t know what impact it will have nationwide.”