Vehicle Scrappage Rules Reform May Impose Rs 25,000 Crore Provision Requirement on Automakers by FY26

Indian Auto Industry Faces Rs 25,000 Crore Hit Due to New Environmental Rules

The Indian automobile industry is staring at a potential loss of Rs 25,000 crore on its bottom line for the fiscal year 2026 (FY26) due to the Environment Protection (End-of-Life Vehicles) Rules 2025. The rules, notified by the Ministry of Environment, Forest and Climate Change in January 2025, have triggered an accounting standard clause that requires automakers to make budgetary provision for environmental compensation for vehicles sold in the past.

According to industry executives, an "innocuous looking" clause in the Environment Protection (End-of-Life Vehicle) Rules, 2025 has spooked automakers after their auditors flagged the magnitude of its ramifications. The clause, Rule 4 (6), requires automakers to comply with their Extended Producer Responsibility (EPR) in respect of vehicles already made available in the market till closure of operations, triggering accounting standard IND AS 37.

This means that automakers will have to make substantial financial provisions for the cost of EPR certificates for all vehicles sold over the past 20 years for private vehicles and 15 years for commercial vehicles. Industry body Society of Indian Automobile Industry (SIAM) had taken up the matter with the ministry, highlighting the financial impact on the bottom line of automakers due to the environmental compensation under IND AS 37.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Preliminary estimates indicate a potential one-time industry impact of approximately Rs 25,000 crore on a gross basis (around Rs 9,000 crore) on a discounted basis in FY2025-26. SIAM had sought the possibility of resolving the issue through amending Rule 4(6) before EC cost notification to clarify that cumulative budgetary provisioning may not be required.

However, the ministry in its amendment notification to the Environment Protection (End-of-Life Vehicle) Rules, 2025 on March 27, 2026 did not alter the specific clause. Once the provision is realised in the accounting books, it would significantly reduce the profits of that year for the entire auto industry.

The auto industry body has urged the government to reconsider the clause, as it may affect the ability of many manufacturers to further make investments in new technologies and fuel their growth plans.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline