India Economy

Drive home the point

Parvatha Vardhini C | Updated on February 25, 2018 Published on February 25, 2018

The draft National Auto Policy has sensible proposals but implementation is key

Apart from the banking sector, it is probably the auto industry that has been in the limelight very often in the last one to two years. Be it the ban on certain kinds of vehicles from entering Delhi and the NCR, the Supreme Court refusal to extend the deadline for switchover to BS IV emission norms, the government’s decision to jump to BS VI norms by 2020 or the plan to move the country towards electric vehicles, combating air pollution has been at the core of every move.

The draft National Auto Policy released by the Ministry of Heavy Industries on February 16 (and open for feedback from industry until February 26) furthers this agenda.

Emission-based taxation

For one, the draft policy calls for change in the way vehicles are classified for the purpose of taxation. Excise duty until mid-2017 and the GST to a good extent use a system of taxing the vehicle based on length, ground clearance, engine type and displacement. This does not help promote reduction in emissions or encourage technology advancements.

For the same reason, the government drew much ire from auto manufacturers when it imposed a blanket ban on all diesel vehicles with engine capacity of over 2000 cc in Delhi for about six months in 2015-16.

Global carmakers such as Mercedes and Jaguar Land Rover, who were among the worst affected by this move, argued that these vehicles may not be the most polluting ones, given the superior technology that goes into their engines.

The GST regime marginally tried to correct this. For example, it imposes a higher cess for small diesel cars than petrol and CNG ones. At the same time, hybrids, which are relatively greener than fossil fuel vehicle, don’t enjoy the excise duty concessions they had earlier, under GST.

The draft auto policy seeks to replace the current system of classification with a criterion based on vehicle length and carbon dioxide emissions (without compromising on GST revenues). The idea is that vehicle length-based classification will reduce congestion on roads and CO2 emissions-based classification will help reduce green house gas emissions.

The roadmap for cut in CO2 emissions is to be laid out by the government in line with global standards. The policy proposes, for instance, a limit of 155 g/km on CO2 emissions in 2018, which would gradually be reduced to 110 g/km by 2028. So in the first year, cars with length less than 4 meters and CO2 emissions less than 155 g/km will be levied a compensation cess rate of 1 per cent apart from the GST rate of 28 per cent. But those of the same size but with higher emissions will have a cess rate of 15 per cent.

Larger cars with length greater than 4 meters and CO2 emissions less than 155 g/km will have a cess rate of 15 per cent. The others with higher emissions will attract the highest cess rate of 27 per cent. Thus all small cars will not be taxed less just because of their size and all large cars will not attract the maximum cess.

Scrappage scheme not shelved

The draft policy also gives a new lease of life to the Voluntary Vehicle Modernisation Programme (V-VMP), stating that it will be implemented soon by the government. The V-VMP targets scrappage of old vehicles beyond a certain age and replacement of these with higher technology and cleaner vehicles.

It proposed that vehicles bought prior to March 31, 2005 (i.e. those older than 10 years) or those below BS IV emission standards would be eligible for incentives if they were scrapped and replaced by new ones. Considering that implementing this proposal would mean that the government would have to bear the financial burden of the duty concessions and discounts, the V-VMP has existed just on paper so far. While the fiscal burden of the move still remains, the government may bite the bullet sooner than later.

Fillip to green mobility

The government seems to be backing out of the 2030 deadline for the shift to electric vehicles, but the draft auto policy shows all is not lost. Thanks probably to insider information, (this policy was released a day after the Road Transport Minister declared that the government would not formulate a separate policy for electric vehicles) the draft stops short of equating green mobility to only electric vehicles. It instead calls for a ‘technology agnostic’ roadmap for green mobility through the evolution of emission regulations.

This u-turn by the government puts at stake plans laid out and investments made by auto manufacturers to meet the 2030 electric vehicle deadline and the priority accorded to these over hybrids.

Nevertheless, while having an all-electric fleet is utopia, a vision to have a greener portfolio of vehicles is much more achievable. Towards this end, a national plan for the establishment of public infrastructure for green vehicles and an action plan for incentives to encourage manufacturing and buying of these vehicles is called for.

Given that the policy makes all the right noises, much can be achieved if the draft doesn’t remain only a draft.

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