How Auto Stocks Reacted To The ‘Green Tax’ Approval
Traffic jam. (Photographer: Prashanth Vishwanathan/Bloomberg)

How Auto Stocks Reacted To The ‘Green Tax’ Approval

Shares of most Indian automakers fell in early trade on Wednesday after the Transport Ministry approved a proposal for a ‘green tax’ on old vehicles.

Union Minister for Road Transport and Highways Nitin Gadkari on Monday had approved a proposal to levy a ‘green tax’ on old vehicles that are polluting the environment. Transport vehicles older than eight years can be charged at the time of renewal of fitness certificate, at the rate of 10-25% of the road tax, according to a statement by the transport ministry.

Also, personal vehicles will be charged at the time of renewal of their registration certificate after a period of 15 years, it said.

The ‘green tax’ will be lower for public transport vehicles like city buses, but the rate will be higher for vehicles being registered in highly polluted cities. In such instances, the rate will be 50% of the road tax. Vehicles like strong hybrids, electric vehicles and alternative fuels like CNG, ethanol, LPG will be exempted.

The proposal will be sent to the states for consultation before it is notified.

The Nifty Auto index fell as much as 1.8% in early trade on Wednesday, becoming the worst sectoral loser, but recovered some of the losses to trade 0.8% down. Of its 15 constituents, 13 are declining and two are trading higher as of 9:55 a.m.

Still, Jefferies said the disincentive may not be high enough to trigger much replacement. “We believe this might not be a sufficient trigger to switch away from older vehicles and additional incentives would be needed to promote replacement,” the research firm said in a note. Passenger vehicles and two-wheelers, according to Jefferies, have witnessed a modest January with month-to-date registrations declining 4-6%.

Automakers are also awaiting details of a scrappage policy that has been in the works for long.

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