Who's Choking New Delhi? Not Carmakers

(Bloomberg Gadfly) -- India's capital is choking on fumes, and the auto industry is preparing to face the courts over what this week was probably the worst air quality in the world, according to Berkeley Earth.

Yet in their zeal to round up the usual suspects, regulators and judges are likely to overlook the real culprits: farmers in the agrarian states that surround New Delhi. The fields are ablaze as post-harvest rice straw is cleared for the winter wheat crop.

It doesn't have to be this way. But as a Punjab grower told the New York Times, a $1,900 seeder that would clear the land without burning is too expensive

When the same thing happened last December, the National Green Tribunal temporarily banned new diesel vehicles in the city. In January, there was a pilot program to keep half of Delhi's 2.8 million cars off the roads. In March, the nation's top court extended the prohibition on diesel cars with 2,000-cc engine capacity in the capital. The court ended that restriction in August, but only after slapping a 1 percent tax on the retail price. Carmakers, which have scrambled to switch from diesel to gasoline, estimated their opportunity loss from the eight-month ban at $600 million.

Mahindra & Mahindra Ltd., India's biggest maker of SUVs, led that switch. Still, the company's auto division posted the lowest profit in more than two years.

The angst with cars is just a sideshow. The city's public transport shifted to compressed natural gas almost 15 years ago. Even environmentalists who advocate a reduction in car use have found that particulate matter in Delhi's air surged in April when farmers in nearby states were preparing to plant rice paddy after the wheat harvest.

India's problem is similar to the annual haze phenomenon in Singapore and Malaysia, caused when Indonesian growers burn rainforests to clear land for palm plantations.

There, naming and shaming big corporations that profit from unsustainable palm oil -- an ingredient in products from lipstick to margarine -- has brought some results. It's hard to replicate that model for rice grown by millions of small farmers. The solution lies with the Indian government, the biggest buyer of food crops. But with Punjab heading for a crucial state election in 2017, politicians don't dare upset the farm lobby.

Aside from the obvious health problems for residents, filthy air could reduce tourism in northern India, weighing on hotel stocks like EIH Ltd., which runs the Oberoi chain, and Indian Hotels Co., owner of the Taj group.

So as the health scare deepens, the obvious -- and perhaps only politically viable -- option is to keep punishing the carmakers. Investors in India's auto industry should be tracking the harvest season as diligently as they follow new model launches.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.