New Delhi: The government's plan to give laggard carmakers an easy route to meet their fuel-efficiency targets retrospectively has split India's auto industry, according to four executives familiar with the development. Tata Motors Passenger Vehicles and JSW MG Motor India are up in arms, while the others are broadly in sync. The rift could delay changes to the ongoing Corporate Average Fuel Efficiency (CAFE) rules, even as the new regime is just nine months away.
The discord surfaced during the meeting of industry lobby group the Society of Indian Automobile Manufacturers (Siam) on Friday, where the two carmakers opposed the proposal to change the CAFE 2 rules, which have been in place since 2022, to give companies that missed their fuel-efficiency targets a cheaper route by buying credits directly from the regulator. Other top carmakers such as Maruti Suzuki India Ltd, Hyundai Motor India and Mahindra & Mahindra haven't expressed any reservations and have backed the move.
A breakdown in consensus on the subject could lead to a delay in finalizing these rules, as the government has invited comments from the lobby group. Earlier too, there were policy deadlocks that had led prolonged discussions and delays for various CAFE 3 norms, which are yet to be notified even as the regime is set to kick in from April.
Earlier this month, the government had released a draft of changes in the ongoing CAFE 2 round to introduce a credit-debit system that would help carmakers avoid stiff penalties by buying credits either from their peers in mutually-agreed trades or at a flat ₹2,500 per g Co2/km rate from the regulator. These transactions would go into a ‘compliance passbook’. Non-compliance with the norms would lead to an estimated penalty of ₹5,000 per g CO₂/km.
With Tata Motors writing to the power secretary three days before the meeting, an executive involved in the discussions said there is now confusion over the stance, as the carmakers earlier had a consensus on this mechanism.
“We are united on the introduction of this system in CAFE 3, which will start from next year. But the opposition of this system for CAFE 2 has created a consensus problem now. Most of the carmakers who were part of the meeting are okay with this system for CAFE 2 going ahead, but the new opposition will lead to further discussions on this issue,” one of the industry executives said.
The second executive clarified that Tata and MG’s opposition is not for the upcoming CAFE 3 norms, but for the retrospective nature of the changes as they had been introduced towards the end of CAFE 2 period.
“To draw an analogy, it is like changing the rules of a match in the fourth (or the last) innings. The carmakers who have complied and created a balance of surplus credit to trade will lose out heavily in this system. Moreover, it is a cheaper way out for the carmakers to avoid penalties by just buying credits directly from the regulator,” the second executive noted.
Tata’s opposition is notable, given that Tata Motors PV's managing director and chief executive Shailesh Chandra is industry body Siam's president.
What the proposal means
To explain the credits system, if the proposal is notified, an automaker would maintain a compliance passbook for each fiscal year of the CAFE regime. A positive credit balance would indicate that a company's average fleet emissions are below the regulator's prescribed limit, while a debit balance would mean emissions have exceeded the threshold. Credits cancel out debits, and automakers must maintain a net positive balance to avoid penalties.
This is the latest episode of automakers clashing on key policy matters after they locked horns on various issues over the last one year—from whether hybrid vehicles should get incentives to if there should be any relief for small cars under CAFE norms.
India had rolled out CAFE norms in 2015, with the first iteration of the targets coming into effect in April 2017. A slightly stringent second iteration came into effect in April 2022 with the third round scheduled to take off in April 2027.
Under the second round, carmakers such as Maruti Suzuki, Tata Motors PV and JSW MG Motor are among those comfortably placed in terms of emission targets. On the other hand, others such as Mahindra and Hyundai India, have missed their targets in at least one fiscal year, although neither of them has disclosed the annual fuel efficiency performance.
Mint had reported in October 2024 that eight manufacturers—including Mahindra, Hyundai, Skoda, Volkswagen, Renault, Honda and Kia—had missed their FY23 emission targets.
A third executive aware of the latest development noted that more carmakers might join Tata and MG to oppose the new proposal as they had been introduced retrospectively.
"This point (on retrospective application) was raised during the meeting. Some companies had objections to applying the credit-debit passbook mechanism to CAFE 2, as they had invested in meeting the targets without the option of having a passbook," said the third auto industry executive in the know.
In its letter on 14 July to the Union power secretary, Tata noted that the Bureau of Energy Efficiency (BEE), the regulator for CAFE, should not involve itself in sale of credits to help carmakers comply.
“If Credits can be created by BEE merely against payment, without any corresponding improvement emission, such Credits would not have the same character," Tata said in its letter. "They would effectively be accounting entries used to extinguish Debits arising as a result of noncompliance.”
Queries sent to power ministry, Maruti Suzuki, Siam, Tata Motors PV, Mahindra, Hyundai Motor India and JSW MG remained unanswered.
Shyamasis Das, who leads the electric mobility research vertical at the New Delhi-based Centre for Social and Economic Progress, earlier told Mint that the option to buy from regulators will be widely used. "While the option of purchasing credits from companies is there, laggards will prefer buying credits from the regulator, given the option,” he said.