India's automobile market: Introducing NCAP and Euro 6 compliant emission regulations

Goods and Services Tax implementation seen as potentially influencing segment makeup

2017/04/03

Summary

Renault Kwid
The Renault Kwid has attained popularity

  Economic reform has been progressing in India under the leadership of Prime Minister Narendra Modi, who took office in May, 2014. The first half of this report will examine two economic reforms being carried out in India: the demonetization of high-denomination bills and unification of indirect taxes. These will be evaluated in terms of their impact on the automobile market. The latter half of the report will focus on the introduction of NCAP (New Car Assessment program) collision testing and Euro 6 compliant emission regulations.

  Among BRICs countries, India's economic growth rate of around 7% is the highest. The number of automobiles sold domestically for the period April, 2016 - February, 2017 increased by 8% year-over-year to 3.339 million units.

  In November, 2016, India demonetized its high-denomination currency and replaced it with new paper money. This was done with the goal to eradicate black money, prevent tax evasion, and move away from a cash economy. Although the temporary shortage of currency affected automobile sales, 4-wheeled vehicle sales recovered in a short period of time. The shortage had a more significant impact on 2-wheelers, but their sales also recovered to the same level as the previous year in February 2017.

  Tax reforms to unify indirect taxes, of which there are currently more than 10 kinds, into a single goods and services tax (GST) are scheduled to be implemented in July 2017. The total indirect tax amount is expected to decrease and the lower prices to benefit customers. Currently, indirect taxes for passenger vehicles with a total length of 4 m or less are given preferential treatment, and this has resulted in these vehicles continuing to make up more than 60% of the vehicle market. However, the introduction of GST is expected to reduce the price difference and affect the makeup of the market.

  For vehicle regulations, India will introduce NCAP, an automobile collision test, from October 2017. It is also preparing to expand Euro 4 compliance regulations across the country from April 2017. India will skip implementation of regulations that conform to Euro 5 and introduce Euro 6 compliant regulations from 2020.



Major economic and automobile system related reforms

Economic areas Demonetization of high-denomination Currency
(Switching to new paper money)
November 2016   India demonetized INR 500 and 1,000 bills and issued new currency. Although this move resulted in confusion, the effect on automobile sales seems to have ended after a short time.
Unifying indirect taxes July 2017   The 10 kinds of indirect taxes will be unified into a single GST.
Auto systems Introducing NCAP October 2017   NCAP will be introduced in stages from October 2017.
Strengthening emission regulations
(introducing Euro 6 standard regulations)
April 2020   India will expand the Euro 4 standard regulation throughout the country from April 2017. The country will skip implementation of Euro 5 standard regulations and introduce Euro 6 standard regulations from April 2020.



Related reports:

India Market Analysis: Record sales in fiscal year 2015-16, strong trend continues in current year (August 2016)
India (Part 3): Tata rebuilding passenger car business (February 2016)
India (Part 2): Suzuki builds new plant and sets up premium car sales channel (January 2016)
India (Part 1): Auto industry envisions quadrupling in next ten years (January 2016)