A new regulatory concern has emerged for India's automobile industry. Companies may have to set aside nearly ₹25,000 crore in the 2025-26 financial year due to a clause in the Centre's End-of-Life Vehicle (ELV) rules. Industry bodies and executives say the provision could significantly impact profits and future investments.
The issue centres on Clause 4(6) of the ELV rules, introduced last year and retained in the March amendment. The clause mandates Extended Producer Responsibility (EPR), requiring manufacturers to account for environmental costs linked not only to future vehicles but also to those sold in the past.
Clause triggers financial liability for past sales
Under the rule, even if a company stops production or exits the market, it must fulfil EPR obligations for vehicles already sold. This applies to personal vehicles sold over the past 20 years and commercial vehicles over the past 15 years.
Industry executives say this requirement aligns with Ind AS 37 accounting standards. As a result, companies must create financial provisions for potential environmental compensation. According to them, this means blocking large amounts of funds against past sales, even if no immediate liability arises.
Also Read | What will decide the verdict? Four key trends to watch across major states
One industry official said the rule compels firms to "make mandatory financial provisions despite having no intention to exit the market," adding that this will "directly affect profitability."
Industry flags ₹25,000 crore impact
Preliminary estimates suggest four-wheeler manufacturers may need to set aside around ₹14,623 crore. Two- and three-wheeler makers could require about ₹9,650 crore. Combined, this could result in a ₹25,000 crore impact on industry profits.
The Society of Indian Automobile Manufacturers (SIAM) has raised concerns and is in discussions with the government. According to the industry body, once environmental compensation costs are finalised, companies may have to make large one-time provisions under Ind AS 37, significantly affecting financial performance.
Also Read | Delhi’s new traffic rule: no direct court appeal
Experts warn that such provisioning could reduce immediate profits and also limit investments in new technologies and expansion plans. Although the industry had sought changes to ease the burden, the clause remained unchanged in the latest amendment.
With compliance now mandatory, automobile manufacturers face a key challenge: balancing environmental responsibility with financial sustainability.
