The Supreme Court has banned
sale of Bharat Stage III (BS-III) vehicles after March 31, 2017. This ruling
will have an adverse effect on the Indian automobile industry which currently
has an unsold inventory of nearly 8.2 lakh BS-III vehicles having a combined
value of Rs.12,000 crore.
The Supreme Court stated in
its hearing on March 29, 2017 that public health is more important than
inventories. . Auto industry sources say that the largest inventory is in the
two-wheeler segment where there are almost 7 lakh units that are BS III. It is
learnt that a bulk of this is with one player – Hero MotoCorp. Besides,
two-wheelers, inventory in CV segment is around 75,000 units, while around 15
to 16,000 units are in the passenger car segment. There are also around 40 odd
thousand unsold three-wheelers with BS III engines.
Says Rakesh Batra, Partner and automotive sector
leader at EY, “The Supreme Court decision will result in
difficulties for the entire automotive value chain, on top of cost increases to
comply with BSIV vehicle production and GST implementation. This industry works
globally on 20 to 30 days inventory within the distribution channel and this
should have considered as part of the transition plan when migrating from BS
III to BS IV. Unfortunately a last minute decision does not help any of the
industry stakeholders or consumers, in the month of March when volumes are
higher due to year-end purchases and deals.”
Shrikant Akolkar (Research Analyst- Auto &
Auto Ancillary, Angel Broking, noted “In a landmark ruling, the
Supreme Court banned the sale of BS-III vehicles effective April 01st 2017. BS
norms represent standards of pollution control and environment sustenance that
vehicle manufacturers need to adhere to.
The Supreme Court’s contention was that since the deadline of April 01st
for BS-IV was already known in advance, auto companies cannot offer inventory
as an excuse. The auto industry currently has an unsold inventory of nearly 8.2
lakh BS-III vehicles having a combined value of Rs.12,000 crore. The argument
of the Society of Indian Automobile Manufacturers (SIAM) is that the production
had to be increased after January 2017 as demonetisation had negatively
impacted their output in the months of November and December 2016. The chunk of
the inventory of BS-III vehicles pertains to the two-wheelers segment and these
may have to be diverted to the international markets where BS-III vehicles are
still permitted. The passenger vehicle manufacturers have already started to
manufacturer the BS-IV compliant vehicles hence we do not expect any big impact
on passenger vehicle manufacturers.”
Earlier in February 2017, Rajiv
Bajaj had told media persons that “...With effect from Jan 2017 all products
from all our 3 plants are BS IV compliant. We have thus ensured that all
vehicles presented for registration from 1st April’17 onwards will be BS IV
compliant. This has been possible because of meticulous planning for dealer
stocks and switching over to production of BS IV compliant vehicles well in
He had further added, “It is
also pertinent to point out that tightening emission to meet BS IV norms comes
at a substantial cost. All those who do not change over on time will
commercially benefit by selling their products at a lower price in case the
amnesty is granted. Therefore, the manufacturers who have followed all
directives in letter and spirit will actually end up being penalised.”
Bajaj Auto felt at that time that
the authorities should send strong message by not giving any amnesty and if at
all any short-term amnesty is given, it should be accompanied by a sizeable
financial penalty on a per vehicle basis on all BS III vehicles registered
after 1st April 2017 to discourage this practice in future. .
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