The Supreme Court yesterday upheld a temporary ban on the sale of large diesel cars in New Delhi to combat toxic smog in India’s capital, but postponed hearing an industry appeal on an environmental tax that carmakers say will hit investment.
Delhi’s block on new diesel cars has unsettled the industry, its salesmen and investors, who warn the ban and uncertainty surrounding it could derail a tentative recovery in auto sales.
Green groups want to extend the ban to smaller diesel cars and other smog-choked cities in India.
Supreme Court Chief Justice T S Thakur said yesterday that the court was considering expanding the ban to diesel cars with engine capacity of less than 2,000 cc - currently not covered - but would first seek industry input on the matter.
The ban will hit Daimler AG’s Mercedes-Benz luxury unit the hardest as its smallest diesel engine on offer in India is 2,143 cc. Diesel sales accounted for about 70% of Mercedes sales in the country last year, and India is one of the fastest-growing regions for the German marquee. Delhi is its biggest market in the nation.
By contrast, the majority of diesel models sold by BMW AG and Volkswagen AG’s Audi are billed as 2-litre engines but measure as little as 5 cc below the threshold - equivalent to one teaspoon - according to specifications listed on their websites.
Mahindra & Mahindra, India’s largest SUV maker, and Toyota, which gets more than half of its India sales volume from the Innova minivan and Fortuner SUV, are also among those affected by the ruling.
“The Supreme Court, given that it has laid down a timeframe for the ban was unlikely to lift it,” said Abdul Majeed, a partner at Pricewaterhouse Coopers LLP’s automotive practice in Bengaluru. “Still, the writing on the wall is clear: diesel technology is coming under criticism around the world and automakers will have to find a way to either significantly reduce particulate matter emissions in diesel vehicles or promote alternative fuels.”
The court had also been expected to rule yesterday on a separate green tax on all diesel cars in the city, but has yet to announce its decision on that levy.
The decision on the tax, critical for Mahindra, Tata Motors and Toyota that have invested heavily in making cars for diesel-loving Indian consumers, may now be heard next week.
While doubling the environment compensation charge (ECC) for loaded commercial vehicles entering Delhi, the court had imposed a blanket ban on registration of diesel vehicles of 2,000 cc and above including SUVs in the National Capital Region (NCR), noting they are prone to cause higher pollution level and are used by the more affluent sections of society.
The top court also banned the entry of heavy commercial vehicles from four additional entry points, National Highways 2, 10, 58 and state highway 57 into Delhi. It, however, allowed the entry of such Delhi-bound vehicles if they paid a pollution cess.
In a series of measures, the top court also asked the central government to replace all government vehicles running on diesel, which are older than five years.
The Supreme Court has also asked the Delhi government to not deny a No Objection Certificate (NOC) to ten-year-old diesel vehicles and 16-year-old petrol vehicles for being sold outside the NCR.