Carmakers say India’s sudden rule changes raise investment uncertainty


Behind the glitzy song-and-dance sequences at the biennial Delhi Auto Expo, executives from automakers including Maruti Suzuki India Ltd., Honda Motor Co., and Ford Motor Co. are expressing concern about sudden changes in regulation.

In December, India’s top court banned the sale of diesel vehicles with 2-liter engines or larger through March. A month later, the government brought forward stricter emission rules by four years. Together with other measures restricting vehicle use, they mark the most concerted efforts to address popular discontent triggered by the hazardous smog that blankets the country’s capital. They were also imposed without prior consultation with automakers.

“Any surprises are never good for the industry,” R. C. Bhargava, chairman of Maruti Suzuki India Ltd., said Wednesday. “It means investments become uncertain and everybody loses because of that.”

The calls for a stable regulatory environment come as Prime Minister Narendra Modi seeks to woo global manufacturers to invest with his “Make in India” campaign. India is forecast by IHS Automotive to overtake Germany and Japan to become the world’s third-biggest auto market in 2019. Carmakers have reacted to the rule changes by introducing smaller engines or gasoline options to beat the diesel restrictions.

Mahindra & Mahindra Ltd., the country’s biggest SUV maker, last month introduced a smaller engine for two of its most popular models. Fiat Chrysler Automobiles NV’s Jeep unit said Wednesday it will follow up the introduction of its diesel-powered SUVs in India in the middle of this year with gasoline-engine options.

While small cars in India tend to be gasoline-powered, a sharp difference in fuel prices led to customer demand shifting to diesel. Demand for gasoline cars has revived after the government scrapped subsidies on diesel at the end of 2014.

Renault SA says it now plans to offer its cars priced under 700,000 rupees ($10,300) with only gasoline engines, while offering diesel as an option on more expensive models.

The regulatory changes have “led to uncertainty in the mind of customers: ‘whether there will be an outright ban on diesel, whether resale values will fall,’ ” said Jnaneswar Sen, senior vice president at Honda’s local unit. “In such an uncertain environment, we have to hedge bets which means you become inefficient.”

Honda introduced its first diesel car in the country in 2013. Sen says demand for diesel-engine vehicles dropped last month from the previous few months.

Nigel Harris, president of Ford’s India unit, said “when you get overnight policy changes, it’s pretty disturbing.” Complying with the changes can be done, but will come at a cost, he said.