Story Of The Week

BS-III BAN- A Stunner for automobile sector

On 1st April, The sale of all the BS-III vehicles came to an abrupt halt in India. For the automobile sector this move was similar to demonetization that took place in the country in November 2016. BS-III ban has perplexed the whole automobile industry and will have a material impact on the whole country. The ban affected over 8 lakh vehicles worth up to Rs 20,000 crores causing the automobile companies to liquidate stocks, upgrade the vehicles to BS-IV emission even exporting the vehicle in other countries where the company has significant presence.

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What are BS-III and BS-IV norms?

Bharat stage emission standards (BS) are emission standards set by the government of India to regulate the air pollutants generated from internal combustion engines and spark-ignition engines equipment, including motor vehicles.

The norms were enforced in India in 2005 in 15 cities but in October 2010 it was enforced all over the country. The BS-IV emission norms were enforced in 13 metro cities on April 2010 but now they will be enforced in the whole country from April 2017.

The different standards fix the different level of emissions allowed for the vehicles by the pollution control board. The idea was to follow the norms similar to that which are followed in Europe for pollution control.

As per ARAI, the exhaust emissions for BS-III two-wheelers direct that the petrol-powered engine should have carbon monoxide (CO) restricted to 1.00 g/km and Hydrocarbon + Nitrous oxide (HC + NOx) emission level should also not be more than 1.00 g/km. For a vehicle to be BS-IV compliant its must have an emission not more than 0.75 g/km of Carbon Monoxide and mixture of Hydro Carbons and Nitrogen oxides respectively. 

Effects of ban on BS-III norms

To reduce the effect of the ban the companies are reducing their inventories by discounting their vehicles (up to Rs 22000 in some cases) and exporting the vehicles to other countries. The reduction in inventory is very important to minimize the losses to the stakeholders. The inventory for the vehicles was nearly 671000 for two wheelers, 100000 for commercial vehicles, 40000 three wheelers and various other passenger vehicles. The activity is very time consuming and it will include various complex procedures. There will be no new vehicle manufactured or registered from 1st April which doesn’t comply with BS-IV emission standards. The countries leading two wheeler manufacturers took a proactive step as it started manufacturing units complying with BS-IV norms a month in advance from the ban. The companies will have to upgrade certain vehicles to comply with BS-IV norms which will cost around Rs 1500-2000 crores. Executives from various companies has assured that the upgrading can be done with minimal cost but will take time.

 Heromotocorp

Immediately after the news of ban the stocks of various automobile manufacturers took a hit especially for HERO MOTOCORP and ASHOK LEYLAND as these companies have high inventories of vehicles complying with BS-III norms.

The effect will be on the whole supply chain and the spare parts providers will have to change their parts which support BS-IV norms, the dealers will be having a stock of inventory piled up which they may return to the company and the new units manufactured will have less sales as already piled up inventory is there with the dealers.

The effect of this will be worse as compared to demonetization because a single truck gives employment to near about 11 people , a car gives employment to 6 people and whereas a two wheeler gives employment to 2-3 people including the finance, funding, insurance, production, vendors. The banks will also be affected because the commercial vehicles are financed through banks which are already sold but may not be registered now. In all a total of 20 stakeholders will be affected by the move.

Upgrading to BS-IV norms would mean higher cost to the automobile manufacturers and users due to improved technology which will releases less pollutants in the air and the cost could be compensated by the costs on health care because with less pollutants there will be less health issues. The BS-IV norms will bring the much needed improvement in the air quality. The number of vehicles as compared to before will be reduced after the ban as Supreme Court has banned the sales of BS-III compliant vehicles. The health of public is more important as compared to the profits of the commercial sectors. The Indian automobile industry has had the capability of making BS IV vehicles since 2010, but lack of BS IV fuel prevented it from selling such vehicles nationwide.

Conclusion

The ban on manufacturing or sale of any vehicle which didn’t comply with BS-IV norm was a total stunner for the automobile sector. Various companies were left with huge inventories which they had to liquidate through discounting and other services before 1st April as the sale for leftover inventory complying with BS-III norms were banned. Various other options were to export or upgrade the vehicle with legal norms prevailing. The companies incurred huge cost in upgrading the vehicles and various losses as unsold inventories but the new step was much needed to improve the condition of environment and for healthy air to breathe in for the humans.

References

http://economictimes.indiatimes.com/markets/expert-view/bs-iii-car-sale-ban-to-affect-banks-among-others-jagdish-khattar-carnation-auto/articleshow/57893701.cms

https://www.thequint.com/car-and-bike/2017/03/31/bs-iii-vehicles-india-pros-cons

http://www.livemint.com/Industry/CR6yMRhMKSPYqeKcojjSJM/Supreme-Court-BS-III-ban-Auto-makers-race-against-time-to-c.html

http://www.livemint.com/Politics/ij1t9cYM0mF5Qur1LTYPWJ/Supreme-Court-bans-sale-of-BSIII-vehicles-from-1-April.html

http://timesofindia.indiatimes.com/business/india-business/auto-firms-scramble-to-liquidate-stocks-of-bs-iii-vehicles-after-supreme-court-order/articleshow/57900052.cms

https://www.bloombergquint.com/law-and-policy/2017/03/29/supreme-court-bans-sale-of-bs-iii-vehicles-beyond-march-31

http://www.livemint.com/Companies/CR6yojNX3V83reDs3YZ9NI/Hero-Honda-offer-discounts-of-up-to-Rs12500-on-BSIII-mode.html

http://auto.economictimes.indiatimes.com/news/industry/bs-iii-vehicles-banned-how-are-bs-iii-vehicles-different-from-bs-iv/57934387

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