The Indian automobile industry is going to face a blow of about Rs 25,000 crore on its bottom line in FY 2026. This is because of the ‘Environmental Protection (End-of-Life Vehicles) Rules 2025’, which has implemented an accounting standards clause that requires automakers to make budgetary provision for environmental compensation for vehicles sold in the past.
According to industry officials, there is a “seemingly minor” clause in the ‘Environment Protection (End-of-Life Vehicles) Rules, 2025’ issued by the Ministry of Environment, Forest and Climate Change in January 2025. When the automakers’ auditors warned them about the potentially serious consequences of this clause, they panicked. Let us also tell you what is that rule due to which the auto sector can suffer such a huge loss.
What are the rules?
“Rule 4 (6)” of the January 2025 notification says, “If a manufacturer shuts down its operations, it shall be required to comply with its ‘Extended Manufacturer Responsibility’ (EPR) in respect of vehicles already made available in the market till the closure of operations…” An industry official said on condition of anonymity, “This rule implements the accounting standard IND AS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’. This means that Automakers will have to make sizeable financial provisions to cover the cost of EPR certificates for all vehicles sold for personal use over the past 20 years and for commercial use over the last 15 years.
money will get stuck
Another industry official said that due to this rule, automobile companies will have to make provision for EPR for vehicles sold in the past, even if they have no intention of leaving the market. Due to this their money will get stuck and profits will be affected. It is understood that industry body ‘Society of Indian Automobile Industry’ (SIAM) had also taken up the matter with the ministry. He highlighted the financial impact on automakers’ profits due to environmental compensation under IND AS 37.
SIAM’s letter to the ministry
In a letter to the ministry, SIAM has written that once the environmental compensation (EC) cost is notified by the CPCB (Central Pollution Control Board), automobile manufacturers may have to suffer significant losses under accounting standards (IND AS 37). “As per initial estimates, there could be a one-time financial impact of around Rs 25,000 crore on a gross basis (and around Rs 9,000 crore on a discounted basis) on the industry in FY 2026.”
The ministry did not make any special changes
The auto industry body had explored the possibility of resolving this issue by amending Rule 4(6) before the EC cost notification, to make it clear that the total budgetary provision may not be required. However, the ministry did not make any changes in that particular rule in its amendment notification made on March 27, 2026 in the Environment Protection (End-of-Life Vehicle) Rules, 2025. Another industry executive said that once this provision is recorded in the accounting books, it will significantly reduce the entire auto industry’s profits for that year.
How much can be the loss?
According to industry estimates, the total industry impact on four-wheeler manufacturers due to this rule will be around Rs 14,623 crore, and the total impact on two- and three-wheeler manufacturers is estimated to be Rs 9,650 crore in FY26. One of the executives said the policy is a major blow to the auto industry’s bottom line, wiping out Rs 25,000 crore of profits and could impact the ability of many manufacturers to invest more in new technology and pursue their growth plans.
