The Indian automobile industry is expected to face a significant financial impact in FY2025–26, with estimates suggesting a potential hit of around ₹25,000 crore to the sector’s combined bottom line due to new provisions under the Environment Protection (End-of-Life Vehicles) Rules, 2025. The issue has emerged following regulatory requirements linked to Extended Producer Responsibility (EPR), which mandate financial provisioning for environmental obligations tied to vehicles sold in previous years.
Industry executives say the concern stems from Rule 4(6) of the notification issued by the Ministry of Environment, Forest and Climate Change in January 2025. The clause requires producers, in case of cessation of operations, to comply with EPR obligations for vehicles already sold in the market. However, auditors have reportedly interpreted the provision in conjunction with accounting standard IND AS 37, which deals with provisions and contingent liabilities, raising concerns that automakers may need to account for large-scale financial liabilities immediately.
According to industry sources, this interpretation could require automobile companies to make provisions for EPR costs not only for future sales but also for vehicles sold over the past 15 to 20 years, depending on whether they are commercial or private vehicles. Executives warn that this could lead to substantial one-time accounting provisions, even for companies that have no plans to exit the market, thereby locking up capital and impacting profitability.
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The Society of Indian Automobile Manufacturers (SIAM) has raised concerns with the government over the financial implications of the rule. In its communication, the industry body estimated that the gross impact could be around ₹25,000 crore, with a discounted value of approximately ₹9,000 crore in FY26. SIAM has urged the government to reconsider the interpretation of Rule 4(6) or introduce clarifications to avoid the need for large-scale cumulative provisioning.
Despite industry representations, the Ministry of Environment, Forest and Climate Change did not modify the clause in its March 27, 2026 amendment to the rules. This has increased uncertainty within the sector, with executives warning that once environmental compensation costs are officially notified by the Central Pollution Control Board, companies may be required to reflect the liability in their financial statements, directly affecting annual profits.
Industry estimates suggest that four-wheeler manufacturers could bear around ₹14,623 crore of the total impact, while two- and three-wheeler makers may face nearly ₹9,650 crore in provisions. Analysts and executives caution that such a large financial adjustment could constrain future investments in new technologies, electric mobility, and expansion plans, potentially affecting the broader growth trajectory of India’s auto sector.