Government sits back, carmakers make hay
No one knows where to place the ultra-low-cost cars in the overall paradigm shift in technology in India. Small cars and downsizing have begun to find favour to achieve greater fuel efficiency in a world increasingly threatened by energy insecurity and global warming, because they are more energy-efficient than oil-guzzling suvs. The main concern about the new small car is abnormally low prices linked to what is on offer in terms of emissions performance, durability and safety.
The Tata car will jam cities before Euro iv standards are enforced in 2010. It will thus meet abysmally backward Euro ii standards in smaller cities that are 10 years behind Europe and Euro iii norms in 11 major cities that lag by five years.Should Tata Motors have waited for Euro iv to kick in? "Why Euro iv, someone may even ask for Euro v. We will meet the standards we have to meet," was md Ravi Kant's reaction, knowing the government is sitting on more stringent standards.
While the automobile industry prospers, much of urban and suburban India is getting more polluted. Central Pollution Control Board data show that in more than half of the 90 cities it monitors, particulate levels (particles of 10 micron that can kill at very low concentration) are hitting the critical button. Nearly 13 cities have begun to show an upward movement in no2 concentration, largely driven by vehicular pollution. Cities close to Singur already have a higher nox profile than most cities. Howrah, a couple of hours from Singur, and Kolkata are among the nox and particulate matter hotspots in the country. Other small cities are showing up on the list of most polluted ones in the country.
Yet the government has not fixed emissions standards to bring all cities within the fold of cleaner standards. Industry observers claim that moving to Euro iv standards will create price pressures. Industry might find it easy to promise rock-bottom prices with good cost management and efficiencies of scale and may even offer a variety of features at reduced costs, but low-cost cars will prevent an r& d challenge. For instance, engines and exhaust systems, along with emissions control components, are taken to constitute about 30-35 per cent of the total cost of a car. I V Rao, technical director of Maruti Udyog, points out that there is little scope to cut costs in these areas since industry has to meet regulations.
The increasing popularity of low-cost cars has created extreme pressures for innovation to meet high and durable efficiency levels at lower and lower costs. This is particularly challenging for emissions-control components manufacturers. Higher emissions control standards imply more precious metal loading in cat converters to clean up exhaust, for instance. This has to be matched with other improvements to reduce emissions.
Strong regulatory checks on performance, safety and durability that are necessary to offset adverse impacts are still weak (see box Not very exacting). Regulators will, however, have to enforce strong compliance measures so that emissions stay low through a vehicle's life and not just when it is new. Small may be efficient, it must also be clean.
The other bigger worry is the advent of cheap diesel cars. Tata Motors is already producing a 700cc commercial pick-up truck and is in the process of upgrading its engine system through collaborations. Cheap cars on low-cost poor quality fuel can be a fatal attraction for low- to middle-income groups. Even without low-cost cars projections show that by 2010, diesel cars can be half of total car sales.
On August 23, 2007, the Delhi High Court raised questions on the expansion of the diesel car fleet in Delhi. It was responding to submissions from the Delhi transport department that on a per passenger-kilometre basis, 3-13 diesel cars spew particulate emissions equal to a diesel bus. This is negating the benefits of switching public transport to cng. The current norms allow diesel cars to emit very high levels of particulate matter, and nearly three times more nox compared to petrol cars. Diesel emissions are several times more toxic.
Without clean diesel and without narrowing the price difference between diesel and petrol, the use of diesel in the ultra-low-cost segment must not be allowed. Only when new diesel vehicles are fitted with advanced emissions control technologies, especially traps, and run on diesel with less than 10 parts per million sulphur fuels, will toxicity levels of the emissions come close to the level of petrol emissions.
How safe are low-cost cars? Industry maintains they meet required standards. But key safety standards are not complete. Some, including the full frontal crash test, air bags that protect the rider from impact and anti-lock braking systems (abs), are not mandatory and offered only in high-end cars. Currently, the Automotive Research Association of India (arai), a Pune-based certification agency, checks components that influence safety levels. These include brake systems, door latches, fuel tanks, speedometers, speed limiters, reflex reflectors, safety glass, safety belts, side door crush resistance, steering wheel impact protection, among others. But full-crash tests that determine how a car will crumple in a collision, minimising the impact on the riders, is still not mandatory. Tata Motors claims it has adequate in-house facilities for safety checks that meet international standards. But key tests are not backed by mandatory certification.
In early September 2007, the Union ministry of shipping, road transport, and highways finalised the draft automotive industry standards for frontal crash, frontal, side and offset impact crash safety tests. To be enforced in 2009-10, these will increase prices. The majority of small cars will have to be upgraded to meet standards. Impact absorbing features like air bags along with abs can increase prices by Rs 40,000-50,000. According to sources in arai, many entry-level cars will need redesign to integrate changes in safety regulations. This could hit makers of small cars.
Unfortunately, Indian buyers are not informed of safety status of cars as in Europe. Add the fact that consumer awareness is low and government not proactive and what you get is a mix that allows industry to get away with specious reasoning--for instance, arguing cars are safer than two-wheelers.
Desperate strategies to cut costs and build a new customer base for cars is easy in India because public policy does not try to recover the full costs of owning and using a car. The cost of using urban space for parking and movement, pollution and health damages, and social impacts are not reflected in taxes and road pricing. Despite enjoying hidden subsidies, the car industry is continuously externalising the true costs of its products while minimising tax contributions.
If fiscal brakes are not applied to check the boom, cars will only complicate the transition to more sustainable transportation in cities.
When mass produced in India, cheap cars will erode the fuel economy advantage of the two-wheeler fleet (see box Poor trade-offs), and counteract the energy and pollution benefits of public transport planned under the Jawaharlal Nehru National Urban Renewal Mission (jnnurm). gdp in India is not adjusted to reflect the congestion and public health cost of the car boom as in other countries. But independent estimates for India show that congestion on Indian roads means a loss of Rs 3,000-4,000 crore every year. As congestion builds up and vehicles slow down emissions increase up to five times.
Industry, now backed by the Auto Missions Plan, is anxious to expand car ownership. There is a huge potential for the car market to grow; India currently has about 7 cars per thousand people compared to the 650 in the developed world. A study carried out by the University of Michigan Transportation Research Institute and ibm Institute for Business Value on how Indians view their automotive future points out that the factors dissuading potential buyers in India from actually buying a car include they don't need a car; are uncertain about the cost of operation; roads are not good; congestion makes driving unappealing; and, parking space is not sufficient. While these are viewed as barriers by industry, the government does not seize this as an opportunity to junk car-centric growth and build systems to actually move people.
While the Union ministry of heavy industry (MoHI) backs the Auto Missions Plan and sops for the car industry, the Union ministry of urban development (MoUD) can barely counter this with its National Urban Transport Policy. It has not yet figured out ways to promote low-cost public transport to counteract low-cost cars, especially in small cities and towns.
An urban infrastructure development scheme for small and medium towns was introduced by MoUD in 2005-06, chiefly to plan for cities and towns with a population of less than a million, and did not qualify for support under JNNURM. Curiously, the scheme listed urban transport (mass rapid transit systems and light railway transport systems) and rolling stock like buses and trams as items not be considered for funding. The justification was this scheme was for small urban areas, where demand for public transport might be inadequate.
By default the responsibility of organising mobility in small cities is left to the people, who then buy personal vehicles. Cars take over cities. Despite apprehensions that the influx of very cheap cars can create severe infrastructure pressures, no move has been made to restrain car use. On the contrary, the car industry is complaining about a high tax burden. Global financial services major Citigroup spawns data to show that taxes pump up the on-road price of the Indian cars by nearly 50 per cent in contrast to 23-28 per cent in China.
Two Union ministries--heavy industries and urban development--have serious differences on fiscal strategy. MoUD has mooted a proposal to levy a Re 1 cess on petrol, an 8 per cent cess on cars and 4 per cent cess on two-wheelers to create an annual Rs 5,000-crore fund to revamp urban infrastructure and reduce use of personal cars. But MoHI is pushing hard to slash excise on small and big cars to perk up the market.
Industry opposes the proposed cesses in this long-running feud, ignoring the fact that the total tax burden per vehicle kilometre is 2.3 times higher for public transport buses than cars in Indian cities, as estimated by a 2004 World Bank study.
The result of this policy failure is evident. Crawling traffic is the most visible indicator. In Delhi, average vehicular speed has plunged from 20-27 km/hr in 1997 to 15 km/hr in 2002, with cars and two-wheelers occupying more than 90 per cent of road space but carrying much fewer people than public transport. In Mumbai, average roadway speed has dropped from 38 km/hr in 1962 to 15-20 km/hr 1993. In Chennai, the average speed is 13 km/hr, and in Kolkata it ranges from 10-15 km/hr but falls to only 7 km/hr in the centre of town. Building more roads is not the answer traffic expands to occupy available space. For every 10 per cent increase in road capacity, there is a resultant 9 per cent increase in traffic.
Globally, cities are recovering the full cost of car use and reducing their use. Congestion pricing has been implemented in London, Stockholm and Singapore, in which motorists are charged a fee to drive into the densest areas, providing an incentive for drivers to find alternatives. In New York it is estimated that congestion costs the region more than US $5 billion in lost time every year. The city's congestion pricing will reduce 'vehicle miles travelled', which could yield significant reduction in emissions. The central London congestion charge, introduced in February 2003, has helped reduce traffic congestion by 30 per cent and pollution by 12 to 20 per cent.
Action can be driven only by political will and public anger. In Kolkata, for instance, there is no road space left for more cars except where tramlines have been ripped out and rickshaws taken off. Alarming level of particles, heavy with diesel particulate matter (share rising up to 61 per cent), is choking the city. The Left Front government cannot implement its own policies to cut vehicular pollution, let alone acknowledge pollution dilemmas. If ignored, this can adversely affect the investment climate in the state.
The message is clear. Industry is trying to create a new class of car owners, backed by public policies to inflate revenue but not produce clean, durable and efficient cars. Badly regulated markets have cost advantages. Industry knows it and uses it. Without policy brakes, more polluting diesel can become the preferred choice of carmakers and users. Given expected sales and the quality of diesel this will spell a public health disaster. Regulators ignore the fact that the majority needs affordable and efficient public transport, not cars. Higher taxes on cars and use can restrain traffic and raise funds for public transport. Stringent emissions norms can improve technology.
Inputs from Vivek Chattopadhyaya, Priyanka Chandola, Jayeeta Sen and Ravleen Kaur