It's the demonetisation of vehicles: all you need to know about the BS-III ban

Outrage and uproar, panic and flash sales ensued as the government gives the automobile sector two days to stop production of BS-III vehicles, and dispose of their existing stock. 

Even as Vinod Dasari, President, Society of Indian Automobile Manufacturers (SIAM), had declared on March 8 that the auto industry is gearing up to commence manufacturing of BS-IV vehicles from April 1 across the country, the Supreme Court, many disgruntled stakeholders are saying, may have jumped the gun in bringing home a battle already won, by banning BS-III vehicles altogether from the same date.

The new BS-IV emission norms will be implemented from April 1, thus deeming outdated and illegal all BS-III vehicles sold and registered after April 1.

1. What 'BS-III' and 'BS- IV' mean

The 'BS' stands for Bharat Stage, and these terms are nothing but emission norms stipulated by the government to regulate the amount of pollutants in the air, from the internal combustion mechanism of engines in vehicles, including motor vehicles, crafted by Central Pollution Control Board (CPCB) under Ministry of Environment, Forest and Climate Change.

BS-III norms first introduced in 2005 in NCR and 13 other cities, and then adopted pan-India 2010 onward, have the emissions tested over the India Drive Cycle (IDC), and thus, led to the two stroke engines of two-wheelers being taken out of circulation. Some electronic controls were also instated to further minimise emissions, and were successful in doing so.

BS-IV standards were also being tested since 2010 in 13 major cities, and are now ready to be stipulated nationwide. They dictate that two and three-wheelers fit an 'evaporative emission control unit', in order to prevent loss of fuel as it evaporates when the vehicle is parked. They also need the cars to have tighter NOx+HC emission limits, harmonisation of the emission testing cycle, and the motorcycle class defined by the UNECE Global Technical Regulation 2 (GTR-2). As opposed to the IDC, these emissions will be tested using Worldwide Harmonized Motorcycle Test Cycle (WMTC).

2. Seven-year lull ending with a bang 

The Supreme Court has today banned the sale and registration of vehicles that are not BS-IV or Bharat Stage Emission norms IV compliant. There are over eight lakh Bharat Stage III vehicles in stock at the moment, and hence, the companies were lobbying for the government to ban the manufacture of these vehicles from April 1 2017, but not their sale and registration.

According to PTI, senior advocate A M Singhvi, appearing for Society of Indian Automobile Manufacturers (SIAM), told the Bench that it needs around a year's time to dispose of the inventory of BS-III vehicles, and bulk of the stock can be sold in 7-8 months. He had said that the phasing out of the vehicles should be done gradually, as since 2010 till March 2017, 41 automobile firms have manufactured 13 crore BS-III vehicles, and their stock at present is 8.24 lakh. "We are companies of reputation. Don't portray us as a villain. We are not running away. We also want that our environment should be pollution-free, and we are saying we will comply with the directions," he had said.

3. Sell while you can

The SC has urged manufacturers to do their best to sell their existing stock in the two days leading up to the ban, but manufacturers feel that it is impossible to do so, and, are instead, looking at either recalling the vehicles to upgrade them, or to export them to markets that do not have such rules, and where they are still compliant to the norms. Recall and upgradation entails lofty costs - which will be even higher for commercial vehicles than it would be for two-wheelers.

Dasari was reported by The Hindu Business Line as saying that after seven years of passive and laidback pushing for these new norms, to suddenly fast-track the ban and grant such short notice to auto manufacturers is "rather unfortunate, as it causes undue stress on the entire industry, and causes loss of jobs.”

4. Biggest losers

The companies that seem to have the most inventory of BS-III are Honda Motorcycle and Scooter India (HMSI), Hero MotoCorp, and TVS Motor in two-wheelers, and Tata Motors, Mahindra & Mahindra (M&M) and Ashok Leyland in the commercial vehicle segment. Other passenger car manufacturers, the article states, had been prepared for this move.

5. One man's poison is another man's food

In circumstances highly reminiscent of the days following the night of November 8, after which the value of existing Rs 500 and Rs 1,000 notes fell drastically, the existing stock of BS-III vehicles is meeting a similar fate. To rid themselves of their soon-to-be-illegal stock, companies have been announcing flash sales and discounts on their BS-III products, like HMSI announcing a discount of up to ₹22,000 across scooters and motorcycles, and dealers granting ₹25,000 off on Activas. Honda is offering a flat Rs 10,000 off, and Hero MotoCorp has an up to ₹12,500 off scheme on its BS-III two-wheelers. Meanwhile, Bajaj Auto's CT100, Platina, V15, Avenger and Pulsar RS200 all have anywhere between ₹3,000 and 13,000 off till the March 31.

The company has also written to its dealers saying: “In case of manual billing, copy of invoice on indicated dates with proof of registration would need to be submitted to Bajaj Auto, which shall be cleared on a case-to-case basis at the sole discretion of Bajaj Auto.”

"These are unheard of discounts ever in the two-wheeler industry," Nikunj Sanghi, Federation of Automobile Dealers (FADA) Director-International Affairs told PTI.

6. "Clearing the air"

Standing its ground, the SC states that "the health of the people is far, far more important than the commercial interests of the manufacturers or the loss that they are likely to suffer."

Environmentalists and Environment Pollution Control Authority (EPCA) are both for the ban, and are happy that the SC acted fast. They had held meetings with the auto industry earlier in October 2016 to gauge how ready they were to transition to BS IV pan-India. The SC even warned the automobile companies "not to frustrate the Centre's initiative to check increasing levels of pollution by selling BS-III vehicles, which are being held in stock."

According to the PTI report, the EPCA had lobbied for this ban because it opined that that automobile firms have had the latest technology at their disposal for a long enough time to make a complete transition by now, and hence, should have scaled down the production of BS-III vehicles.

Solicitor General Ranjit Kumar, appearing for the Centre, had told the court that fuel for BS-IV vehicle is "much cleaner" and the oil refineries had spent around Rs 30,000 crore since 2010 to produce it. He had said that a BS-III vehicle can run on BS-IV fuel. It should be noted, however, that BS-IV vehicles would encounter various malfunctions if made to run on BS-III fuel - which was a point of contention for the auto industry, owing to the lack of availability of BS-IV fuel.

The court had three options: either to ban registration of BS-III vehicles, or to allow their registration but ban plying of such vehicles in major cities, or ask the companies to pay costs for creating health hazards and reimburse the Centre, which spent enormous money in upgrading the fuel standard.

7. The other side of the story

Dasari told NDTV that the auto industry was always capable of making vehicles compliant with the new BS-IV norms for almost seven years, but adoptability was a problem, as the lack of the fuel meant for BS-IV vehicles prevented them from selling these vehicles widely. "Running a BS-IV vehicle with BS-III fuel can cause severe problems to some vehicles," he said.