The best possible way to reduce oil dependency and minimize GHG emissions is to build conventional vehicles lighter and more fuel-efficient. This will not only lead to a substantial reduction in the fiscal deficit of oil-importing countries and air pollution, but also improve the health standards of the people.
The Indian automotive industry has come a long way and is considered as one of the most mature and competitive industries in the world. The surge in the disposable incomes and a resilient economy has created huge market for both commercial and passenger vehicles. India is the 9th largest manufacturer of motor vehicles and cars in the world. However, the surge in the automobile market has made India more reliant on oil than ever before. Currently, India is the 5th largest oil importer in the world. With all global automobile giants set to foray into India to meet the ever-increasing demand for personal vehicles, its oil dependency will rise further in the coming years. For the past 25 years, India’s domestic production of oil has remained the same, while its expenditure on petroleum products has grown manifold. India imports almost 70% of its oil, which is having a major impact on its balance-of-payments position.
Growing Concerns
Even if the recent series of domestic oil exploration discoveries are totally exploited, India will find it hard to keep its imports down at existing levels, as domestic demand for petroleum products is growing persistently at more than 5% per year. Industry estimates predict that India’s import dependency will increase from the current 70% of consumption to about 85% in the next 15 years. With oil prices not likely to come down in the near future, it is very difficult to maintain a decent oil stock and this could affect the growth and trade balance of the Indian economy negatively. The International Energy Agency, in its World Energy Outlook 2007, mentioned that if existing policies continue, India will become the third biggest emitter of Greenhouse Gases (GHG) by 2015. The transport sector in India is mainly responsible for air pollution, which causes a wide range of health problems. According to a WHO study, more than 527,000 of deaths were reported in India in 2007 due to air pollution. The number increased phenomenally in 2011. The obvious solution to these troubles would be to reduce the use of petroleum products. Against this, interest in vehicles that use unconventional fuels, known as green vehicles, has caught the imagination of people all over the world in recent years. Vehicles that run on alternate fuels like Ethanol, CNG and LPG and Hybrid vehicles that run on conventional as well as electronic batteries are more attractive than conventional vehicles, as they do not use any energy during idling. They even follow the stringent environmental guidelines, which make them environment friendly and less polluting.
Global Trends
Toyota Motor was the first automaker to take the green initiative. A decade ago, it launched a hybrid car, Prius, that uses a combustion engine and battery power. It is the global leader in hybrid technology with a market share of 80% and worldwide sales of over 500,000. But green cars still make up only a small fraction of global car sales. Auto experts say that they do not expect green vehicles to make a strong impression until the middle of the next decade. Globally, the US is the largest market for green vehicles. According to JD Power and Associates, a leading company that forecasts global automotive trends, sales of green vehicles in the US is set to double from 346,000 units to 673,000 by 2009. Unfortunately, as per the green rankings of the Union of Concerned Scientists, Honda from Japan topped the list as the most fuel-efficient and clean car.
Another Japanese automaker Toyota came second, and Hyundai occupied the third position. In Europe, a legislation to decrease vehicular pollution is being implemented. It imposes a mandatory fee on vehicles depending on their size, emission, fuel-efficiency, fuel type and environmental-friendliness. Nonetheless, the efforts to go green has so far done little to boost the sales of car makers in Europe, who are keen to win back the lead from their Asian rivals by stressing on commitment to environmental friendliness. For instance, in Germany, even though green cars are generating a lot of interest, customers are not yet prepared to pay exorbitant prices.
Sales of low emission vehicles, such as hybrids and ethanol-powered cars, grew by 25% in the first half of the year in Sweden. It aspires to become a complete oil-free economy by 2020. Attractive tax exemptions for the owners of green cars helped significantly to boost sales Sweden. Now, the German government is also planning to implement the same measures. Brazil, the leading manufacturer of ethanol, has nearly 20% of the vehicles use 100% ethanol, while the rest of the vehicles use 25% ethanol. It plans to free itself from the burden of oil imports by the end of 2009.
Enter India
With global market for green cars gaining momentum, albeit slowly, and international players like Toyota and Honda all set to enter Indian market, even domestic giants do not want to lag behind. Mahindra & Mahindra (M&M), Tata Motors, Ashok Leyland, and two-wheeler makers like Bajaj Auto and TVS Motors are all set to jump on the green bandwagon and are preparing themselves to produce green vehicles. They are confident of delivering such vehicles at much lower prices against those offered by their foreign counterparts.
Tata Motors, in association with Indian Space Research Organization (ISRO), has chalked out an eight-year time frame to manufacture its successful car Indica, other buses and trucks in their green avatars. It has roped in IIT Madras to do research and bring out hydrogen-based internal combustion engine. Tata Yazaki Autocomp Limited, a division of Tata AutoComp Systems (TACO), has been providing hybrid fuel technology to Ford and other global auto giants. Tata is also working on another Indica version that would run on hydrogen and CNG. To compete with the international car makers in the passenger car segment, it intends to produce five electric variants that use lithium ion batteries and run up to 200 km per one charge. Tata is ready with an electric vehicle, based on its fast-selling Ace mini-truck prototype, to capture significant share in Europe and US markets.
At the recently concluded Auto Expo in Delhi, M&M showcased two hybrid vehicles including a hybrid variant of its Sports Utility Vehicle (SUV), Scorpio. It has also completed the first phase of a pre-feasibility study to develop electric hybrid and hydrogen-powered vehicles with Royal Dutch Shell plc. The second phase of the same study is now under way. Similar to Tata, M&M is also planning to enter Europe and the US with its hybrid vehicles in the next two years.
Bumpy Road Ahead
While green cars have been attracting the attention of customers globally, only a few have succeeded. The acceptance of Reva across Europe, particularly in London, is an indication that India has an advantage in this technology. Unfortunately, successive governments have done little to promote the project. Several factors, including government policies, infrastructure in the form of fuel stations and the availability of fuel to meet demand, and traffic systems will have to be upgraded to make green vehicles a success in India. The lack of availability of alternate fuels extensively is a major deterrent to the growth of green vehicles. While CNG is available mainly in the west and north, LPG’s availability has been limited to specific cities at select centers.
Jose Paul, Program Manager, Frost & Sullivan, predicts “The expected ramp up of refueling networks is expected to take time with the CNG pipeline project slated to be operational only by 2008-09. Moreover, the set of mother and daughter stations is likely to take an additional two to three years; similarly, it would take about five to six years to build up the number of LPG refueling stations across the country.”
Another main hurdle is the cost that is associated with green vehicles. Eco-friendliness is something customers consider as a costly affair and do not wish to splurge more money in order to get it. A host of customs duties, including 15% countervailing duty on components, 3% central and 12% local sales tax add up to a huge cost. Being the latest technology, they tend to be 20 to 50% more expensive than conventional ones. According to Dilip Chenoy, Director General, Society of Indian Automobile Manufacturers (SIAM), “The state of hybrid development is very nascent in India and the penetration of such vehicles may be limited because the technology will only be available in vehicles above Rs 10 lakh.” The higher cost, however, could be somewhat negated by a 15 to 20% decrease in running costs because of better fuel efficiency. Electric cars, for example, will cost only 40 paise per km. Meanwhile, companies like M&M are looking for different options tobring down the manufacturing costs. They ought to educate customers about the need to buy green vehicles and their benefits in the long run.
A long way to go
While these efforts are laudable, some experts feel the market for green vehicles in India still has a long way to go. According to Kapil Arora, Partner, Ernst & Young, the market for green vehicles in India, particularly the passenger car segment, will take off in at least the next 8-10 years and two- and three-wheelers might develop much sooner in around 3-5 years. The domestic sales of India’s first electric car, Reva, produced by Bangalore-based Reva Electric Car Company, have been too little with virtually no sales in India. In the two-wheeler segment, a joint venture between the Hero Group and UK’s Ultratech, and Electrotherm India and companies such as Ultra Motor India have made a humble beginning. However, there is no organized body yet to represent them.
Auto analysts are of the opinion that prior to launching green vehicles and other cutting-edge technologies, India needs to catch up with some basics. Although much progress has been made in the last decade for emissions, Indian companies should close the gap in the implementation timing with the rest of the global giants. They believe that green technologies would take time to get accepted in the Indian market and the immediate and practical way would be in the form of vehicles running on alternative fuels such as CNG, LPG or ethanol blends. Maruti Suzuki, the market leader in passenger car segment, has launched a new version of Wagon R Duo that comes with LPG kit. Hyundai Motor India Ltd., Ford India and GM India have also launched CNG and LPG versions, but could only meet with limited success.
Future
Global auto giants like Toyota and Honda already have the required infrastructure in terms of assembly lines and manpower to go green. The Indian Government should initiate a sustained and consistent policy by considerably reducing customs duty on importing technology and support the automobile sector to participate in sufficient research projects in this regard. Some experts are requesting the government to introduce continuous increase in excise duties for inefficient vehicles and reward green vehicles. If the government exempts green vehicles from import duty and registration tax, the overall cost of production will reduce andthe market for them will grow.
Green vehicles are being projected as better alternatives as they emit less GHGs per kilometer. Traffic safety is also another issue that cannot be ignored, as more than 90,000 Indians die in vehiclecollisions annually. Bulky and gas-guzzling vehicles like SUVs can often reduce owner’s risk, but inflict more risk on other vehicle users. When it comes to utilizing full energy potential, there is still a lot of room for green vehicles to get close to conventional vehicles. Hence, petroleum and diesel may continue to remain as the important form of mobile energy in the near future. However, the best possible way to reduce oil dependency and minimize GHG emissions in the meantime is to build conventional vehicles lighter and more fuel-efficient. This will lead to a substantial reduction in the fiscal deficit of the country and air pollution, while ultimately improving the health standards of the people.
N Janardhan Rao, Senior Economist.
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