India’s automobile industry is bracing for a ₹25,000 crore hit to profits in FY26, triggered by the Environment Protection (End-of-Life Vehicles) Rules, 2025, which mandate financial provisioning for past vehicle liabilities.
At the core of the issue is Rule 4(6) under the policy, which requires automakers to fulfil Extended Producer Responsibility (EPR) obligations even for vehicles already sold in the market, particularly in case of business closure.
This clause activates accounting standard IND AS 37, compelling companies to create provisions for environmental compensation (EC) tied to vehicles sold over the past 20 years (private) and 15 years (commercial).
Industry executives say this effectively forces companies to block significant capital upfront, even if they have no plans to exit operations, thereby impacting profitability.
According to estimates shared by Society of Indian Automobile Manufacturers (SIAM), the gross financial impact could reach ₹25,000 crore, with a discounted impact of around ₹9,000 crore in FY26.
Segment wise, the burden is expected to be around ₹14,623 crore for four-wheeler manufacturers and ₹9,650 crore for two and three-wheeler makers.
SIAM had urged the government to amend the clause before finalising EC costs, highlighting concerns over cumulative provisioning requirements. However, the Ministry of Environment, Forest and Climate Change retained the clause in its March 2026 amendment, leaving the industry exposed to the financial impact.
Experts warn that once these provisions are reflected in financial statements, they could significantly reduce annual profits, potentially affecting investment capacity in new technologies, including electric mobility and clean energy transitions.
The development underscores a growing tension between environmental compliance mandates and financial sustainability, as the auto sector navigates stricter regulatory frameworks while investing in future growth.
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