Background –
It’s akin to expecting someone to climb Mount Everest in a month, Rajan Wadhera says of having to leapfrog to the much stricter Bharat Stage VI (BS VI) emission norms from BS IV in less than three years.
The task at hand for Wadhera, president, automotive sector at Mahindra and Mahindra Ltd, involves upgrading and overhauling the entire manufacturing ecosystem to ensure it can handle several thousand tests, calibration and validation and also fits in well with the technology choices, while keeping a tight leash on costs.
That will make it one of the most mammoth research and development projects undertaken by the automotive industry in India, says Timothy Leverton, chief technology officer at Tata Motors Ltd.
The transition will involve overhauling the working dynamics of the automakers and will alter the cost structure forever, Leverton says.
So what differentiates the BS VI standard from BS IV?
It’s the introduction of advanced technologies to ensure pollutants emitted by the vehicles are reduced and comply with the specified limits. It will also mean a number of changes to be made in the engine systems.
The implementation of the advanced emission norms might still be three years away, but Wadhera and Leverton are already racing against time to execute the most complex project of their careers.
The task is more onerous for companies that have products spanning several categories, ranging from cars and SUVs to two-wheelers and trucks. Such a portfolio means that the companies would have to invest more resources and time to build the requisite capabilities for successfully executing the programme.
Tata Motors, for instance, uses 34 different engines and has 150 vehicle programmes that will be fitted with those engines. “We have such a huge range to work on—from Magic Iris to 49-tonne trucks,” says Leverton. “Europe took nine years to go to the effective equivalent of BS VI, we have to do it in three. It’s a huge programme.”
Mahindra’s Wadhera echoes similar sentiments. “In my last 50 years, I have not seen this kind of challenge. It’s far more difficult than most of the technical transformations that I have seen so far.”
To understand the challenges Wadhera and Leverton face, it is worth diving into the underlying emission technologies.
To achieve a reduction in particulate matter by 82% and oxides of nitrogen (NOx) by 68%, auto makers need a combination of technologies—one is the diesel particulate filter (DPF), a device designed to remove diesel particulate matter, or soot, from the exhaust gas of a diesel engine.
Then there’s selective catalytic reduction (SCR) and exhaust gas re-circulation (EGR), which is for NOx reduction.
SCR is a process that uses a catalyst to convert NOx in exhaust gases to nitrogen and water, which are then released into the air. In EGR, the engine re-circulates a portion of the exhaust gas back to the engine cylinders depriving it of certain amount of oxygen thereby leading to lower temperature burn. This reduces NOx emissions, but produces more PM, which is reduced using diesel oxidation catalyst (DOC) and particulate filter.
Auto parts shake-up
The transition is also an inflection point for auto component makers—both Indian and multinationals. By acquiring technologies and capabilities through joint ventures, home-grown companies see this as a chance to move up the value chain.
For multinationals such as Germany’s Bosch AG and America’s Cummins Inc., it’s an opportunity to develop a solution for a market that is unique, and create an economy of scale for low-cost emission control systems and technologies that can be used in other emerging markets.
“The shift to BS VI is set to shake up the auto component industry,” says Raghuttama Rao, a former managing director at Icra Management Consulting Services Ltd. According to Rao, only those that have the requisite technology will be able to pass muster. He expects dominance of global auto component makers to increase, either directly or indirectly.
Jan O. Röhrl, chief technology officer and head of mobility solutions business for India at Bosch Ltd says: “It’s a huge step as compared to a BS IV since the capacity requirement for a BS VI is increased by a factor of 4 to 5.”
The shift, he adds, is an opportunity for the automaker and Bosch as a supplier, pointing out that the company will draw from its previous learnings as it has supplied the same globally and can do the same even in India.
Owing to its long presence in the country, it already has modern testing facilities. Additionally, in May, Bosch broke ground for the second phase of its Bidadi plant near Bengaluru with an investment of around Rs500-600 crore. The unit will manufacture parts for BS VI compliant vehicles as well.
The local arm of the German component maker is developing a lean electronic fuel injection system (LEFIS) for three-wheelers that will help them meet the BS VI norms.
“We knew that in a cost-sensitive market like India, customers would face the difficulty of being able to afford a fuel injection system that was relevant to European conditions,” he says. The challenge, therefore, was to design a system for India that would not just meet the stringent particulate matter (PM) and NOx emissions of BS VI but also be cost-effective and robust to survive “the harsh use-case here”, he says.
A combination of mechanical pump and electronically controlled smart fuel injectors, LEFIS is estimated to go into series testing phase by mid-2019 and enter 2020 fully prepared to meet the BS VI emission regulation, he says.
Sandeep Sinha, chief operating officer at Cummins India Ltd, says the real challenge is not engines or engine technology as that’s already available, but system integration and optimizing them as per Indian driving cycle and the time required for calibration and validation. Cummins is one of the largest engine makers in the country.
The cost of developing an engine platform averages from Rs150 crore to Rs200 crore, according to Sinha. Cummins is investing Rs1,000 crore in setting up the world’s biggest research and development centre in Pune. The centre, which will start operations from the third quarter of fiscal 2017, will also have test cells for BS VI engines and will help the firm localize a lot of critical parts that are currently imported.
BS VI is a challenge as well as an opportunity for the industry as none of the Euro 6 markets have bikes with small engines, according to Deepak Jain, managing director of Lumax Auto Industries, a Gurgaon-based company that supplies lighting systems for vehicles. Manufacturers in India would have to develop a cost-effective solution from the ground up.
To be sure, it’s not the technical capability which is worrying auto firms as quite a few of them have been exporting Euro 6 vehicles to several markets. “The technology isn’t extremely difficult, but you can’t simply take what is available in Europe and transplant it in India as our driving cycle is very different,” says Vinod Dasari, managing director of Ashok Leyland Ltd. “We will have to apply Indian innovation and this will require investment and time.”
Driving cycle refers to the speed of a vehicle versus time.
It’s the challenge of executing the project of such a huge scale which is giving sleepless nights to companies. As the intermediary BS V stage has been skipped, there’s a time crunch and firms would have to develop and optimize the DPF and SCR systems in parallel, instead of doing it sequentially.
“I know how to do it. But I need to know how to do it better than others,” says Dasari.
Mahindra’s Wadhera agrees. “It’s not about the technology per se as I have it, my challenge is to multiply it over various platforms in that order, go through the grind with perfection. In the process of doing that, I don’t have to compromise on fuel efficiency,” he says.
Mahindra’s large portfolio of models explains Wadhera’s worries. The company has 10 vehicle platforms across several product categories including cars, SUVs, trucks and pick-ups. For each, it would need at least 20 people and three years’ time to develop a good DPF with good test facility. It needs 5,000 hours on the test bed and at least 700 tests on the chassis dynamometer, a device for measurement and testing developed to simulate the road on a roller in a controlled environment, mainly inside the building. The vehicle is fixed to a building with a restraint device.
To test these technologies for best results, their performance needs to be monitored in every season and across various terrains, says Wadhera. “You are trying to evolve a methodology for calibration. To ensure the technology developed is foolproof, you need a minimum of two cycles—two years, two seasons,” he explains, adding that any laxity in testing and validating the functioning of the device can be a major safety hazard.
The second technology is SCR, which too has a development cycle of three years. It will take close to 4,000 hours of test-bed running. It will need chassis dynamometer and will necessitate development of several new parts and around 20 to 25 new vehicle systems.
There is also the challenge of packaging them all efficiently in the limited space without compromising on fuel efficiency. The addition of parts and aggregates such as the DPF , a urea tank, dozing unit for NOx (required in SCR) will increase the weight of the vehicle by at least 40-50kg. The additional weight can impact the fuel efficiency.
Economies of scale
To be able to develop both DPF and SCR technology simultaneously, across 10 vehicle platforms, Mahindra will need 400 skilled people—20 people per platform. “Manpower needs to be skilled, who will teach them? It’s a new technology. We are struggling, it’s a mammoth challenge,” says Wadhera.
Unlike BS IV and BS V where one can manage with either one of the technologies—EGR or SCR, BS VI needs both. Therefore, the complexity increases manifold, says Leverton. The sheer content means that the number of engineers and test facilities one needs, will have to be accelerated.
One of the biggest areas of engineering activity for example, is in the areas of electronic control calibration—“you make the basic system and you have to adapt it to an application of a vehicle”, he says, pointing out that Tata Motors needs three times the number of calibration engineers it currently has.
The average cost of calibrating and developing each of the ten BS VI platforms could be anywhere between Rs75 crore to Rs100 crore, depending on the extent to which a company seeks external help and engages firms such as FAB, Ricardo and AVL that specialize in emission technology, says Wadhera.
In the run-up to the BS VI implementation in April 2020, Ashok Leyland is likely to spend anywhere between Rs200 crore to Rs400 crore, says Dasari. This is inclusive of infrastructure and people costs, among other things. Ashok Leyland will need to hire around 100 engineers, he says.
It’s critical to do it all at a competitive cost so that Indian companies can compete with big multinationals, who have it all—technical capability, experience, and deep pockets.
“We would be much rather on the lower side. With lower costs, we’ll have a much better pricing power,” says Wadhera, pointing out that the economies of scale Indian companies have will put them in good stead vis-à-vis foreign rivals.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.
Globally, around 80% of wastewater flows back into the ecosystem without being treated or reused, according to the United Nations.
This can pose a significant environmental and health threat.
In the absence of cost-effective, sustainable, disruptive water management solutions, about 70% of sewage is discharged untreated into India’s water bodies.
A staggering 21% of diseases are caused by contaminated water in India, according to the World Bank, and one in five children die before their fifth birthday because of poor sanitation and hygiene conditions, according to Startup India.
As we confront these public health challenges emerging out of environmental concerns, expanding the scope of public health/environmental engineering science becomes pivotal.
For India to achieve its sustainable development goals of clean water and sanitation and to address the growing demands for water consumption and preservation of both surface water bodies and groundwater resources, it is essential to find and implement innovative ways of treating wastewater.
It is in this context why the specialised cadre of public health engineers, also known as sanitation engineers or environmental engineers, is best suited to provide the growing urban and rural water supply and to manage solid waste and wastewater.
Traditionally, engineering and public health have been understood as different fields.
Currently in India, civil engineering incorporates a course or two on environmental engineering for students to learn about wastewater management as a part of their pre-service and in-service training.
Most often, civil engineers do not have adequate skills to address public health problems. And public health professionals do not have adequate engineering skills.
India aims to supply 55 litres of water per person per day by 2024 under its Jal Jeevan Mission to install functional household tap connections.
The goal of reaching every rural household with functional tap water can be achieved in a sustainable and resilient manner only if the cadre of public health engineers is expanded and strengthened.
In India, public health engineering is executed by the Public Works Department or by health officials.
This differs from international trends. To manage a wastewater treatment plant in Europe, for example, a candidate must specialise in wastewater engineering.
Furthermore, public health engineering should be developed as an interdisciplinary field. Engineers can significantly contribute to public health in defining what is possible, identifying limitations, and shaping workable solutions with a problem-solving approach.
Similarly, public health professionals can contribute to engineering through well-researched understanding of health issues, measured risks and how course correction can be initiated.
Once both meet, a public health engineer can identify a health risk, work on developing concrete solutions such as new health and safety practices or specialised equipment, in order to correct the safety concern..
There is no doubt that the majority of diseases are water-related, transmitted through consumption of contaminated water, vectors breeding in stagnated water, or lack of adequate quantity of good quality water for proper personal hygiene.
Diseases cannot be contained unless we provide good quality and adequate quantity of water. Most of the world’s diseases can be prevented by considering this.
Training our young minds towards creating sustainable water management systems would be the first step.
Currently, institutions like the Indian Institute of Technology, Madras (IIT-M) are considering initiating public health engineering as a separate discipline.
To leverage this opportunity even further, India needs to scale up in the same direction.
Consider this hypothetical situation: Rajalakshmi, from a remote Karnataka village spots a business opportunity.
She knows that flowers, discarded in the thousands by temples can be handcrafted into incense sticks.
She wants to find a market for the product and hopefully, employ some people to help her. Soon enough though, she discovers that starting a business is a herculean task for a person like her.
There is a laborious process of rules and regulations to go through, bribes to pay on the way and no actual means to transport her product to its market.
After making her first batch of agarbathis and taking it to Bengaluru by bus, she decides the venture is not easy and gives up.
On the flipside of this is a young entrepreneur in Bengaluru. Let’s call him Deepak. He wants to start an internet-based business selling sustainably made agarbathis.
He has no trouble getting investors and to mobilise supply chains. His paperwork is over in a matter of days and his business is set up quickly and ready to grow.
Never mind that the business is built on aggregation of small sellers who will not see half the profit .
Is this scenario really all that hypothetical or emblematic of how we think about entrepreneurship in India?
Between our national obsession with unicorns on one side and glorifying the person running a pakora stall for survival as an example of viable entrepreneurship on the other, is the middle ground in entrepreneurship—a space that should have seen millions of thriving small and medium businesses, but remains so sparsely occupied that you could almost miss it.
If we are to achieve meaningful economic growth in our country, we need to incorporate, in our national conversation on entrepreneurship, ways of addressing the missing middle.
Spread out across India’s small towns and cities, this is a class of entrepreneurs that have been hit by a triple wave over the last five years, buffeted first by the inadvertent fallout of demonetization, being unprepared for GST, and then by the endless pain of the covid-19 pandemic.
As we finally appear to be reaching some level of normality, now is the opportune time to identify the kind of industries that make up this layer, the opportunities they should be afforded, and the best ways to scale up their functioning in the shortest time frame.
But, why pay so much attention to these industries when we should be celebrating, as we do, our booming startup space?
It is indeed true that India has the third largest number of unicorns in the world now, adding 42 in 2021 alone. Braving all the disruptions of the pandemic, it was a year in which Indian startups raised $24.1 billion in equity investments, according to a NASSCOM-Zinnov report last year.
However, this is a story of lopsided growth.
The cities of Bengaluru, Delhi/NCR, and Mumbai together claim three-fourths of these startup deals while emerging hubs like Ahmedabad, Coimbatore, and Jaipur account for the rest.
This leap in the startup space has created 6.6 lakh direct jobs and a few million indirect jobs. Is that good enough for a country that sends 12 million fresh graduates to its workforce every year?
It doesn’t even make a dent on arguably our biggest unemployment in recent history—in April 2020 when the country shutdown to battle covid-19.
Technology-intensive start-ups are constrained in their ability to create jobs—and hybrid work models and artificial intelligence (AI) have further accelerated unemployment.
What we need to focus on, therefore, is the labour-intensive micro, small and medium enterprise (MSME). Here, we begin to get to a definitional notion of what we called the mundane middle and the problems it currently faces.
India has an estimated 63 million enterprises. But, out of 100 companies, 95 are micro enterprises—employing less than five people, four are small to medium and barely one is large.
The questions to ask are: why are Indian MSMEs failing to grow from micro to small and medium and then be spurred on to make the leap into large companies?
At the Global Alliance for Mass Entrepreneurship (GAME), we have advocated for a National Mission for Mass Entrepreneurship, the need for which is more pronounced now than ever before.
Whenever India has worked to achieve a significant economic milestone in a limited span of time, it has worked best in mission mode. Think of the Green Revolution or Operation Flood.
From across various states, there are enough examples of approaches that work to catalyse mass entrepreneurship.
The introduction of entrepreneurship mindset curriculum (EMC) in schools through alliance mode of working by a number of agencies has shown significant improvement in academic and life outcomes.
Through creative teaching methods, students are encouraged to inculcate 21st century skills like creativity, problem solving, critical thinking and leadership which are not only foundational for entrepreneurship but essential to thrive in our complex world.
Udhyam Learning Foundation has been involved with the Government of Delhi since 2018 to help young people across over 1,000 schools to develop an entrepreneurial mindset.
One pilot programme introduced the concept of ‘seed money’ and saw 41 students turn their ideas into profit-making ventures. Other programmes teach qualities like grit and resourcefulness.
If you think these are isolated examples, consider some larger data trends.
The Observer Research Foundation and The World Economic Forum released the Young India and Work: A Survey of Youth Aspirations in 2018.
When asked which type of work arrangement they prefer, 49% of the youth surveyed said they prefer a job in the public sector.
However, 38% selected self-employment as an entrepreneur as their ideal type of job. The spirit of entrepreneurship is latent and waiting to be unleashed.
The same can be said for building networks of successful women entrepreneurs—so crucial when the participation of women in the Indian economy has declined to an abysmal 20%.
The majority of India’s 63 million firms are informal —fewer than 20% are registered for GST.
Research shows that companies that start out as formal enterprises become two-three times more productive than a similar informal business.
So why do firms prefer to be informal? In most cases, it’s because of the sheer cost and difficulty of complying with the different regulations.
We have academia and non-profits working as ecosystem enablers providing insights and evidence-based models for growth. We have large private corporations and philanthropic and funding agencies ready to invest.
It should be in the scope of a National Mass Entrepreneurship Mission to bring all of them together to work in mission mode so that the gap between thought leadership and action can finally be bridged.