National Auto Policy: overall development of Indian auto industry

Proposed implementation of CAFE regulations, and emission-based taxation

2019/01/18

Summary

The draft of National Auto Policy 2018 suggests adopting a long-term roadmap to decide emission standards after BS-VI and harmonize emission standards with global benchmarks by 2028. It also recommends Corporate Average Fuel Economy (CAFE) standards by 2025. It suggests that tax exemption will be given to cars based on length and CO2 emissions. The government plans to bring CO2 emissions down to 110 g/km by 2028.

The policy does ask for a definition of the long-term roadmap for incentives and infrastructure investments for green mobility.

The policy advocates the harmonization of standards over the next 5 years and evaluates accession to the UNECE WP.29 1958 agreement within the same period. It also suggests upgrading facilities and developing expertise at NATRiP, a testing agency, as per requirements for testing according to the Bharat New Vehicle Safety Assessment Program (BNVSAP). The policy also supports implementation of a vehicle scrapping policy - Voluntary Vehicle Modernization Program (V-VMP).

The Policy advises identification of critical components to be developed locally and harmonize AIS and BIS standards for these auto components. The Policy recommends lower import duties on capital goods, as well as equipment and machinery for the manufacturing of new technology components.

For research and development, the policy suggests to set-up a 'Technology Acquisition Fund' to acquire technologies through licensing agreements, joint ventures or acquisitions. It recommends tax exemption on different levels of R&D expenditure.

National Auto Policy 2018

 

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MOVE 2018 - India's First Global Mobility Summit (Part 1) (Sept. 2018)
Review of Electric Vehicles and the EV Ecosystem in India (Aug. 2018)
India: Vehicle sales grow to 3.76 million units; electrified vehicle adoption policy introduced (Mar. 2018)

 



National Auto Policy 2018

  On 17 February 2018, Department of Heavy Industry, Government of India released a notification for draft of National Auto Policy. The policy advocates adopting a long-term roadmap for emission standards beyond BSVI and harmonizing them with global standards by 2028. It also envisions Corporate Average Fuel Economy (CAFE) standards for 2025 and beyond. The policy also recommends adopting a composite criterion based on length and CO2 emissions to classify vehicles for differential taxation purposes.

  It will harmonize automotive standards over the next 5 years in line with WP.29. The policy also recommends fast track adoption of the Bharat New Vehicle Safety Assessment Program, harmonize AIS and BIS standards on safety critical parts over the next 3 years and improve the skill development and training eco-system. It suggests retaining tax exemption on different levels of R&D expenditure with strong audit control as well as scaling up indigenous R&D with commercially viable innovations.

 

NAP and Automotive Mission Plan 2026

  Automotive Mission Plan 2026 (AMP 2026) has been finalized jointly by the Government of India and the Indian Automotive Industry. The AMP 2026 is focused on bringing the Indian Automotive Industry within the top three in the world for engineering, manufacturing and exports of vehicles & components; with the goal of growing in value to make up 12% of India's GDP and generate an additional 65 million jobs. AMP will contribute to the "Make in India" and the "Skill India" programs. It also aims for a 5 fold increase in the export of vehicles and a 7.5 fold increase in the export of components.

  To achieve the goals of AMP 2026, the government needs to address issues like long-term industry roadmaps, supply chain infrastructure, skilled manpower, technology access and R&D expertise, policy instability and governance issues.

  The National Auto Policy is formulated to create a favorable environment for the automotive industry and address the key issues impacting the industry. Through a comprehensive policy framework, it envisions the growth of the automotive industry as per the goals of AMP 2026.

  A brief time line of implementation of policy and review can be found below.

NAP and Automotive Mission Plan 2026

 

NAP objectives

Measures to increase Vehicle and component exports

  The policy suggests conducting a detailed study of the business environment, procedures, infrastructure etc. in export dominant countries such as China and Japan to identify areas of improvement in India. It also urges automotive bodies like SIAM and ACMA to identify and initiate trade agreements with countries that are attractive markets for Indian automotive exports.

  It will consider a phased increase of duty credit scrips (export promotion incentive of 2% that allows the holder to import commodities by not paying a specified amount of import duties) for export of vehicles and auto components in line with comparable products to target countries under Merchandise Export from India Scheme (MEIS).

Skill development and training eco-system

  The policy recommends increasing the accountability of the Automotive Skills Development Council (ASDC) through performance-based funding as well as implementing a Labor Market Information System (LMIS) for aggregated information of certified candidates and serve as a marketplace to match demand and supply of skilled labor.

Address logistics challenges for auto industry

  The auto policy emphasizes the development of a world-class logistics infrastructure such as automotive logistics parks around existing automotive clusters, multi modal transport for low-cost modes as well as improvements to port infrastructure to facilitate exports and imports of automobiles and components.

Develop consumer feedback and rating system

  The auto policy suggests designing and rolling out a star-rating system that lets consumers rate the performance of OEM dealerships, workshops and service centers. It also recommends establishing an automotive ombudsman to provide a grievance redressal mechanism for consumers before adopting legal recourse, which will address vehicle sales related issues, and service and warranty related issues.

 

Proposed governance and management for the automotive industry

  National Auto Policy proposes the formation of a nodal body for the automotive industry which will be the central consultative agency for the Ministry of Heavy Industry and Public Enterprises (MoHI&PE), the Ministry of Road Transport and Highways (MoRTH), and other ministries involved in the formulation of automotive related policies and regulations. It will be a two-tiered structure with an Apex Body supported by the National Automotive Council (NAC).

  Members of the Apex Body will be Ministers and Secretaries from different Ministries and eminent stakeholders nominated from industry and academia. The NAC will consist of joint secretaries from different Ministries, OEMs and auto component manufacturers, industry bodies (SIAM, ACMA, SMEV, etc.), ASDC, testing agencies (NATRiP, iCAT etc.), design agencies, research institutions, academia, independent consultants, and nominated global experts etc.

Proposed governance and management for the automotive industry


  In addition to continuous monitoring, the Department of Heavy Industries (DHI) will conduct an independent assessment and mid-term review of the Auto Policy in the year 2022 which also includes the additions applicable for the remaining policy tenure.

 



Regulations and standards, and taxation

  The policy proposes to roll out a comprehensive long-term roadmap for the automotive industry. This roadmap will in turn enable the industry and support agencies to define the requirement of technologies, testing facilities, skill development and plan long-term investments.

  The Key Guidelines are as below;

 

Standards after BS-VI regulations

  Define the emission standards that will be applicable after BS-VI with a target of meeting the most stringent global standards by 2028, across all vehicle segments; introduction of new norms shall begin in 2026 with a 2-year phase-in period.

Suggested emission roadmap beyond BS-VI
Suggested emission roadmap beyond BS-VI

Source: Ministry of Heavy Industry and Public Enterprises, National Auto Policy (Draft Version 2), March 2018

 

At present, the adoption of emission standards worldwide as per the International Council on Clean Transportation is as below.

Implementation timeline of heavy-duty emission standards in major vehicle markets
Implementation timeline of heavy-duty emission standards in major vehicle markets

Source: The International Council on Clean Transportation (ICCT)

 

Adoption of CAFE regulations

  Fuel consumption standards for Indian vehicles came into force in April 2017 for petrol, diesel, liquefied petroleum gas (LPG) and compressed natural gas (CNG) passenger vehicles. These standards are based on a Corporate Average Fuel Efficiency (CAFE) system and targets to bring about improvement in fuel consumption of passenger vehicles by 2022. The policy supports a continuous reduction in CO2 emissions through CAFE regulations. It will be implemented over two phases.

Phase I:
  • Define CAFE standards (CO2 g/km) for all passenger vehicle manufacturers from 2020 onward
  • Evaluate and notify difference between target and actual fuel efficiency in CO2 g/km
  • Define and levy penalties for manufacturers with average fuel efficiency above target

Phase II:
  • Develop provisions for banking of CO2 credits and trading of credits between companies
  • Allow manufacturers to form a pool to jointly meet their CO2 emission targets

 

A comparison of present CO2 emission targets of different countries/regions for passenger vehicle
Country
or Region
Target
Year
Regulated metric Unadjusted Fleet
Target/Measure
Form of target curve
Brazil 2017 Energy consumption 1.82 MJ/km Weight-based corporate average
China 2015
2020
Fuel consumption 6.9 L/100km
5 L/100km
Weight-based corporate average
EU 2015
2021
CO2 130 g/km
95 g/km
Weight-based corporate average
India 2017
2022
CO2 130 g/km
113 g/km
Weight-based corporate average
Japan 2015
2020
Fuel economy 16.8 km/L
20.3 km/L
Weight-based corporate average
Mexico 2016 Fuel economy/
Greenhouse gas (GHG)
emission
39.3 mpg or 140 g/km Footprint-based corporate average
U.S. 2016
2025
Fuel economy/ GHG 36.2 mpg and 225 g/mi
55.2 mpg and 147 g/mi
Footprint-based corporate average

Source: The International Council on Clean Transportation (ICCT)

 

GST framework based on length and CO2 emissions
GST framework based on length and CO2 emissions

Vehicle taxation based on composite length and emissions

  The policy proposes the introduction of a composite length and emissions-based criterion for vehicle taxation. Each dimension of the classification framework will be aligned to meet the key objectives of reduction in congestion and CO2 emission.

  Vehicle length based classifications will target a reduction in vehicular congestion, and CO2 emissions based on classifications will align with the overall vision of reducing Green House Gas (GHG) emissions.

  In the proposed taxation framework, base GST rate for passenger cars will continue to be 28% and GST cess rates will depend on vehicle length and CO2 emissions.

Financial Year 2018 2020 2022 2024 2026 2028
"E" in CO2 g/km 155 150 140 130 120 110

Source: Ministry of Heavy Industry and Public Enterprises, National Auto Policy (Draft Version 2), March 2018

 

Harmonize standards over the next 5 years

  As per industry bodies, India currently has more than 70% safety regulations which are either partially or fully aligned with GTRs and UN Regulations while keeping in view Indian specific driving and environmental conditions. The Government of India is focused on aggressive upgrades to standards in order to expedite reaching global benchmarks. The policy therefore proposes to harmonize auto standards over the next 5 years.

  It will define a roadmap for harmonizing key standards and testing methods with global benchmarks. The policy recommends upgrade agencies like ARAI and NATRiP, in line with the harmonization plan, to develop capabilities which are on par with global testing and certification agencies. It will also evaluate accession to the UNECE WP.29 1958 agreement within the next 5 years, which will eliminate a major technical barrier in trade.

Reference link: MarkLines - Regulations
Fuel Economy/CO2 - India
UN Regulations



Vehicle and auto components manufacturing

  The objectives of the National Auto Policy will be met through policy interventions across five identified focus areas: Research and Development, Vehicle Manufacturing, Auto Component Manufacturing, Green Mobility and Eco-system development. The policy guidelines specific to these areas are as below.

 

Vehicle Manufacturing

  The Policy recommends the upgrading of facilities and developing of expertise in National Automotive Testing and R&D Infrastructure Project (NATRiP) as per requirements for testing according to the Bharat New Vehicle Safety Assessment Program (BNVSAP). Cars sold in the country will be assigned by star ratings based on their safety performance. It will be implemented in phases, according to the plans being drawn up by the NATRiP. The policy mandates fleet purchases in identified public and private sectors (taxis, rental cars etc.) to be of the minimum BNVSAP rating.

  The policy also supports implementation of vehicle scrapping - Voluntary Vehicle Modernization Program (V-VMP). V-VMP aims to promote the replacement of old vehicles and thereby reduce vehicular emissions and improve fuel efficiency. The proposed scheme would provide an incentive of 8-12% to voluntarily scrap old vehicles and purchase new vehicles.

Vehicle Manufacturing

 

Auto Components Manufacturing

Auto Components Manufacturing

  The Auto Policy recommends following guidelines for auto component segments.

1. Develop capabilities and technology improvement in identified areas

  The Auto Policy promotes the identification of critical components for which domestic capacity and capabilities need to be developed based on technology roadmaps. It encourages foreign investment in cooperation with domestic investment agencies in identified areas.

2. Harmonize AIS and BIS standards for safety critical auto components

  The policy suggests evaluating the need for dual standards - AIS for OEM components and BIS for aftermarket components and creating a roadmap for the unification of AIS and BIS standards on safety critical parts over the next 3 years, with the ultimate goal of a single standard.

3. Offer fiscal support on identified technologies and components

  The Policy recommends lower import duties on capital goods, equipment and machinery for the manufacture of new technology components. It advices use of the 'technology acquisition fund' for development and acquisition of critical technologies, as well as drive cluster level technology improvements. It recommends following target technologies with corresponding components and equipment that will be eligible for import duty reduction.

Auto Components Manufacturing


Green mobility and eco-system

Green Mobility

Green Mobility

  The policy proposes following guidelines for adoption of green mobility.

1. Roadmap and adoption in public domain

  The policy proposes finalization of a technology agnostic green mobility roadmap through the strengthening of emission regulations. It also suggests defining the long-term roadmaps for incentives and infrastructure investments relating to green mobility.

  It mandates the minimum share of green vehicles among new vehicles purchased by central and state government agencies and municipal corporations. This includes 25% of all vehicles from 2023 and 75% of all vehicles from 2030 procured by central and state government as well as 50% of all vehicles from 2023 and 100% of all vehicles from 2030 procured by municipal corporations in metros.

  It also recommends using the Government e-Marketplace (GeM) portal to aggregate all green vehicle orders with standard specifications over three months and enable bulk procurement.

2. Plan an advanced and extensive green mobility infrastructure network

  National Auto Policy suggests conducting a detailed study on the requirements of public infrastructure for green vehicles. It suggests defining a national plan for the establishment of public infrastructure for green vehicles and should have density as well as a mix of green mobility infrastructure based on target adoption, technology requirements and capabilities as well as standards for public charging infrastructure in terms of power supply, connectors etc. to ensure quality, safety and interoperability.

  The policy also invites private funding for green mobility infrastructure through PPP - Hybrid Annuity Models

3. FAME scheme

  The auto policy recommends fast track comprehensive implementation of the FAME scheme and alignment with the overall Electric Vehicle (EV) vision of the country. It also goes with incentives for public transport and restricts subsidies for private vehicles. The subsidy will be based on parameters like fuel consumption improvement, CO2 emission reduction, battery energy density, all electric range, etc.

4. Consumer awareness and fiscal incentives of green mobility

  The policy recommends developing a comprehensive nationwide consumer awareness campaign for green vehicles aimed at informing the public about the benefits of adopting green mobility. It also advocates facilitating changes in the banking norms to ease loans and financing for green vehicles.

 

Eco-system development

  The Auto Policy recommends following guidelines for automotive standards, testing and certification

1. Automotive Standards

  The National Auto policy supports periodic independent studies of real-world fuel consumption data of vehicles and compares them against the laboratory test measurements data. Based on these studies, appropriate adjustment factors need to be included to avoid overestimating fuel and environment benefits.

  It also includes provisions for banking and trading of CO2 credits by vehicle manufacturers. It advocates creating a public information system that will provide manufacturer and model level information on emissions and fuel consumption.

2. Testing and Certification

  The National Auto Policy suggests establishing an investment and upgrade plan of test facilities in India, aligned with overall industry roadmaps. It proposes upgrading a few NATRiP centers to become one-stop or turn-key development and testing solution providers to the industry. It also recommends building "Public Private Partnership" models for funding upgrades of testing facilities, without conflicts in interest.

 



Innovation, research and development

Innovation, research and development

  The Auto Policy recommends the following guidelines.

1. Scale-up indigenous R&D with commercially viable innovations

  The policy suggests setting up a 'Technology Acquisition Fund' to acquire technologies through licensing agreements, joint ventures or acquisitions. It also favours incentivizing Public Private Partnership (PPP) based industry investments in research and development of commercially viable technologies through a Hybrid Annuity Model (HAM). HAM's a hybrid - a mix of the EPC (engineering, procurement and construction) and BOT (build, operate, transfer) models. Under HAM the government will contribute to 40% of the project costs as annual payments over a defined number of years, while the remaining 60% is paid as variable annuity contingent to project performance. Through this model, enough liquidity is available to the private player and the financial risk is shared by the government.

2. Implement an outcome-based funding scheme for Industry-Academia collaboration

  The policy says that to promote innovation in technologies, it should have been initiated by industry or jointly by the industry and academia. Funding patterns for selected projects will be 25% by industry and up to 50% by DHI. DHI funding will be a minimum of 25% if the project qualifies under the Uchchatar Avishkar Yojana (UAY). UAY was launched to promote industry-specific need-based research so as to keep up the competitiveness of the Indian industry in the global market.

3. Retain tax exemption on different levels of R&D expenditure

  The Policy recommends following tax exemption on different levels of R&D expenditure.

Innovation, research and development


  It further says that defining R&D expenditure heads under the standard accounting practice will be eligible for exemption and mandate audits for classification of eligible R&D expenditure - only the expenses certified by a statutory auditor will be eligible for exemption.

4. Encourage development and registration of patents in India

  The National Auto Policy recommends strict implementation and protection of Intellectual Property Rights (IPR) in compliance with Trade-Related Aspects of Intellectual Property Rights (TRIPS). It also encourages patent registrations in India through streamlining and simplification of the patent application and registration process.


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Keywords
India, NAP, National Auto Policy, FAME, CAFE, regulations, CO2 emission, GST, safety, green mobility, ecosystem, mobility, EV, battery

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