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Temporary ban on sale of luxury diesel cars

Temporary ban on sale of luxury diesel cars

ABOUT five years ago, when then-environment minister Jairam Ramesh described the growing tendency of affluent Indians to drive SUVs and luxury cars that guzzled diesel (a fuel that was heavily subsidised by the government) as ‘criminal,’ he was widely criticised by the automobile industry, and even the United Progressive Alliance government did not take him seriously.

Last week, taking into consideration the seriousness of air pollution in Delhi during the winter months, the Indian Supreme Court ordered a temporary ban on the sale of large diesel cars between January 1 and March 31. The apex court imposed a ban on the registration of SUVs and luxury diesel cars with a capacity of 2,000cc or more in the national capital to combat growing pollution.

A week earlier, the National Green Tribunal (NGT) — the country’s environmental court — imposed a ban on the registration of all diesel vehicles for about a month in the national capital to help clean up the polluted atmosphere.

The past few weeks have seen a series of moves by the executive and the judiciary to tackle the crisis in the smog-ridden city.

The Delhi government had proposed curbs on vehicles use by ordering that odd-numbered cars would be allowed on odd dates and even-numbered registration plates on other days. This is to be implemented on a pilot basis in the first fortnight of 2016.

The Supreme Court also doubled the green cess on commercial vehicles entering Delhi. It also directed that commercial vehicles that are over 10 years old will not be allowed to enter the national capital and all taxis — including those operated by Uber and Ola — must convert to CNG by March.

The apex court clarified that the temporary ban would not hurt the ordinary citizen; it was not fair on the part of the rich to continue buying diesel-fuelled luxury cars and pollute the city, it added. It also asked the central government to provide masks to traffic policemen in Delhi to protect their health.

The automobile industry, however, has not taken kindly to these orders. The Society of Indian Automobile Manufacturers (SIAM) said the issue of pollution needs “to be looked at holistically if the objective of improving the air quality is to be achieved in Delhi.” It felt the apex court ban on the sale of large diesel vehicles and SUVs for a period of three months would not bring any perceptible improvement in the quality of air.

One of the worst impacted by the temporary ban is Mercedes-Benz, which mostly sells diesel vehicles. The company, which reported a 34pc rise in sales in India during the first nine months of the year, will see a sharp drop in sales. Diesel vehicles account for nearly 70pc of its sales in the country.

“The ban creates an environment of uncertainty and will severely impact our expansion plans and future investments put in place for the Indian market,” said a spokesperson for the German carmaker. “We also have to consider the loss of jobs that this will result at the dealerships, at the vendors producing diesel engines and also negatively impacting our own workforce.”

DOMESTIC Indian major Mahin­dra & Mahindra (M&M) is the other automaker to be hurt badly by the temporary ban. Anand Mahindra, chairman, Mahindra, was confident his company would be able to overcome the challenge posed by the court order.

Earlier in the month, after the NGT imposed a temporary ban on registration of new diesel vehicles, Pawan Goenka, executive director, M&M, described the restriction as ‘unfair and discriminatory.’

According to Goenka, all the efforts of automakers to make diesel engines cleaner over the last 15 years have been nullified by the NGT order. He blamed older diesel vehicles (the pre-Bharat Stage IV, corresponding to Euro IV norms) for much of the particulate matter (PM) present in Delhi (and attributed to auto pollution).

By banning the registration of the newer BSIV diesel vehicles, efficient and low-polluting cars were being penalised, whereas the older models — which are far more inefficient and contribute largely to the pollution levels) — are allowed to operate, he said. Goenka notes that improved diesel engines over the past 15 years have brought down PM levels by more than 80pc and nitrogen oxide by more than 50pc in BSIV vehicles, as compared to pre-BSIII vehicles.

Interestingly, the ban has come at a time when demand for diesel vehicles has slowed down thanks to the virtual scrapping of subsidies on diesel. When the fuel was heavily subsidised by the government before 2014, almost half the cars sold were the diesel variant. But after the withdrawal of subsidies, sales of petrol cars now account for almost two-thirds of the total.

The biggest contributor to the dieselisation — and consequent increase in pollution levels — of the fuel economy in India has been the politics of extending subsidies to diesel by successive Indian governments. In fact, auto majors such as Maruti Suzuki (the country’s top automaker), Hyundai, Honda and Ford invested billions of rupees in setting up new plants for diesel vehicles because of the subsidies.

In 2001, Maruti Suzuki launched the Versa, an efficient, petrol van to cater to the needs of BPO employees around the country. The company launched the vehicle as the government had committed to phase out subsidies on diesel by 2002. But when successive governments failed to withdraw the populist subsidy, Maruti had to junk a fuel-efficient vehicle and invest large sums in diesel engine plants, which it did in 2007. The company has invested about Rs30bn in two new diesel engine plants, as consumers preferred buying diesel vehicles, as the fuel was subsidised.

International automakers including Hyundai, Honda and Ford also had to go in for diesel engine plants to cater to the market needs, ignoring other fuel-efficient variants. The companies have also been improving the efficiencies of diesel engines, bringing them at par with Euro IV emission standards, but all the investments will now prove to be futile, with the ban on diesel vehicles.

Published in Dawn, Business & Finance weekly, December 21st, 2015

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