The COVID-19 pandemic in India, like everywhere else, has adversely impacted the Indian economy across many sectors. The most affected sectors include automobile, aviation, retail (including tourism and services), construction, and real estate, among others.
The automobile sector, in particular, has been the most adversely impacted. The industry contributes approximately 7.5% of the nation’s GDP and a whopping 50% of manufacturing GDP with a large economic multiplier impact. It is directly and indirectly responsible for millions of jobs while serving as a barometer for the country’s overall economic growth. It is estimated that a prolonged slump in the auto industry can lead to serious industry-wide repercussions. The slow-down in the automobile sector due to the COVID-19 pandemic is now a prolonged one, with accelerated and continuous decline in production in absence of demand and existing inventory piling up with no sign of immediate relief in sight.
Globally, Corporate Average Fuel Efficiency/Economy Regulations (CAFÉ) has been adopted by countries like the US, EU, and South Korea to reduce their carbon footprint by reducing CO2 emissions and petroleum consumption. However, India has been trying to catch up, given its vast population of 1.4 billion, high cost sensitivity, unorganized urbanization, and lower income. Given these unique and differentiated circumstances, India needs its own sustainable and affordable mobility approaches such as CNG, HEV’s, EV’s, and biofuels, while striking a balance between automotive industry growth, environmental impact, and employment opportunities to address the unique concerns that it has. (Approach for CO2 Reduction in India’s Automotive Sector, November 2019, SAE International. Also available on: https://www.sae.org/publications/technical-papers/content/2019-28-2388/).
COVID-19 Recovery Plan for the Industry
The Indian Government has already announced a national economic recovery plan with USD 270 billion, accounting for 10% of the national GDP, aimed at supporting industries and sectors that have been affected the most through their supply chain partners. It is hoped that the Government may, going forward, announce another set of economic measures aimed to support the automotive sector due to the kind of hit the sector has received during the ongoing crisis.
A Potential Economic Package with Conditionality
It is being estimated that the Indian Government can potentially come out with an automotive sector economic package after assessing the extent and scale of loss and/or damage. Given the automotive sector and its overall contribution to CO2, a potential economic package could be a mutually agreeable and verifiable achievement. Some climate linked drivers for an economic package for automotive sector may include following:
- A time bound transition to an e-mobility plan already announced by the Indian government. A policy on e-mobility was announced in 2017 with the intention to go up to 100% e-mobility route by 2030. The policy has partially seen the uptake by the sector and this part can be set as one of the necessary conditions. National Electric Mobility Mission Plan, 2020 (https://dhi.nic.in/writereaddata/Content/NEMMP2020.pdf) targets deployment of up to 7 million hybrid and electric vehicles (EVs) in India by 2020. Even the newly announced budget (2019-2020) puts an impetus on EV adoption, seeking requisite support of the automotive industry in plugging the production gap in a time bound transition.
- The use of BS VI (equivalent to Euro VI) clean fuel came into force in India since April 1, 2020 and can be leveraged as a well-timed mechanism, linked as one of the conditions for a potential automotive sector economic package. BS VI can go a long way towards reducing NOx emissions by 25% in petrol and 43% in diesel vehicles, on an average. BS VI regulation contains reference specifications for commercial gasoline and diesel fuels. From an emissions and air quality perspective, the most important parameter defined in the fuel quality specifications is the maximum sulfur content of gasoline and diesel fuels. In both cases, sulfur content is limited to a maximum of 10 ppm in BS VI regulation, which matches global best practices. Low sulfur fuels greatly reduce emission rates of pollutants that have a significant human health burden, such as particulate matter (PM) and nitrogen oxides (NOX).
- The adoption of Corporate Average Fuel Economy (CAFÉ) standards, aimed at lowering fuel consumption (or improving fuel efficiency) of vehicles by lowering carbon dioxide (CO2) emissions, thus serving the twin purposes of reducing dependence on oil for fuel and controlling pollution.
- National Policy on Biofuel, 2018, (http://petroleum.nic.in/national-policy-biofuel-2018-0) is aimed at the target of achieving 20% blending of biofuels with fossil-based fuels by 2030, needs a quick uptake. The Biofuel Policy helps in regulating biofuels production including mandatory blending of ethanol with gasoline, diesel with biodiesel, for a future clean energy vision, and incentivizing bio-based products/fuels.
- More financial resources for automobile research and development activities focused on cutting emissions and generating more green automotive jobs.
Activity Rating: *** Right Direction
The Indian automotive industry, directly or indirectly, is responsible for millions of jobs, and needs Government’s support. The current push towards electric vehicles, biofuels, stricter pollution control measures etc. is a welcome step; this should, however, not happen at the cost of our environmental gains obtained during the COVID-19 pandemic with reduced activities. Government help for the sector should come in form of a special automobile industry economic recovery package that includes conditions for greening the industry.
Smt. Nirmala Sitharaman, Honourable Union Minister of Finance
Ministry of Finance, North Block
Government of India, New Delhi
Post submitted by India Country Manager Pooran Chandra Pandey.