Industry insiders note that a seemingly “harmless” clause in the Environment Protection (End-of-Life Vehicle) Rules, 2025, issued by the Ministry of Environment, Forest and Climate Change in January 2025, has unnerved automakers after auditors highlighted the extent of its implications.
The “Rule 4 (6)” from the January 2025 notification specifies, “If the producer ceases operations, the producer must fulfill its Extended Producer Responsibility (EPR) concerning vehicles already made available in the market until the closure of operations…”
“This rule activates accounting standard IND AS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, indicating that automakers must set aside considerable financial provisions for the cost of EPR certificates for all vehicles sold over the past 20 years for private use, and 15 years for commercial use,” stated an industry executive who wished to remain anonymous.
Another industry representative remarked, “Due to this rule, automotive companies will need to allocate resources for EPR concerning vehicles sold in the past, even if they do not plan to exit the market, thereby tying up funds and impacting profits.” It has been reported that the Society of Indian Automobile Industry (SIAM) has raised concerns with the ministry, emphasizing the financial burden on automakers due to the environmental compensation linked to IND AS 37.
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“Once the environmental compensation (EC) cost is set by the CPCB (Central Pollution Control Board), vehicle manufacturers may need to make significant cumulative financial provisions in line with the accounting standards (IND AS 37). Initial estimates suggest a possible one-time industry impact of about ₹25,000 crore on a gross level (approximately ₹9,000 crore) on a discounted basis in FY2025-26,” SIAM expressed in a letter to the ministry, which was reviewed by PTI.
The auto industry body had requested a resolution of this issue through an amendment to Rule 4(6) before the EC cost notification to clarify that cumulative budgetary provisioning might not be necessary.
Nevertheless, the ministry, in its amendment to the Environment Protection (End-of-Life Vehicle) Rules, 2025, on March 27, 2026, did not modify the particular clause.
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“Once the provision is reflected in the financial statements, it would significantly diminish the profits of that year for the entire automotive industry,” another industry executive noted.
According to industry estimates, the total impact on four-wheeler manufacturers due to this rule is around ₹14,623 crore, while for two and three-wheeler manufacturers, the total impact is projected to be ₹9,650 crore for FY26.
This policy poses a substantial blow to the automotive sector’s bottom line, potentially erasing ₹25,000 crore from profits and could hinder many manufacturers’ ability to invest in new technologies and pursue growth strategies, one executive remarked.
