Speaking at the Lok Sabha, Union Transport Minister Nitin Gadkari announced the vehicle scrappage policy, which was mentioned in the previous year's Union budget. This is expected to give a real shot in the arm for the sinking automobile industry. The policy will help increase country's automobile industry turnover to Rs 10 lakh crore from the current Rs 4.5 lakh crore, apart from improving the eco-friendliness and efficiency of the automobiles, Gadkari said.
So, how does it work?
The policy directly deals with passenger vehicles older than 20 years and commercial vehicles older than 15 years, which is when their "lifecycles" are officially deemed to come to a close. This is marked by decreasing fuel efficiency and greater propensity to damage the environment via emissions. The new policy deems that vehicles older than these time periods undergo mandatory inspections and, if deemed unfit, the vehicles will be deregistered (registration certificate will not be renewed). That means, these vehicles will not be allowed to run on the road. Even if deemed fit once, these mandatory inspections will happen every five years.
Should you scrap your vehicles?
The government offers numerous incentives for the same. There will be a 25 per cent discount in road tax. A scrapped vehicle will be offered a moentary value close to 4-6 per cent of the showroom value. There could even be up to 5 per cent discount on the purchase of a new vehicle if a scrap certificate is produced.
What are the benefits of this policy?
There will be greater fuel efficiency, adverse environmental impact will be reduced, a lot of new jobs could be produced in the scrapping industry, and raw material availability will surge. With the scrapping of old vehicles, raw materials such as plastic, copper, aluminium, steel and rubber will be recycled. This will bring down the cost component and help the industry become more cost-competitive.
When will this start to happen?
News agency PTI reported that under the policy, tentatively, rules for fitness tests and scrapping centres are likely to be applicable from October 1, 2021, while scrapping of government and PSU vehicles that are older than 15 years will be from April 1, 2022. The mandatory fitness testing for heavy commercial vehicles is likely to be in force from April 1, 2023, and the same will be in place in a phased manner for other categories from June 1, 2024.
'Fillip to the automobile industry'
The proposed vehicle scrappage policy will provide a fillip to automotive industry volumes and spur demand for new vehicles, rating agency ICRA said. "The government of India announced the much-awaited scrappage policy yesterday, which along with several other supporting measures announced over the past few months, is expected to progressively remove unfit vehicles from the road. This would simultaneously spur replacement demand in the ecosystem, thereby augmenting new vehicle demand as well," ICRA said in a statement.
Shamsher Dewan, vice president and group head of corporate sector ratings, ICRA, said: "The much-awaited scrappage policy is expected to provide a fillip to the auto industry volumes, and has potential to realise multiple other benefits such as reducing pollution and oil imports, reducing raw material costs through metal recycling, fleet modernisation etc."
However, setting up of necessary infrastructure for scrapping and further clarity on the valuation of the scrap value of the vehicle, trade ability to scrap certificate etc. remain key for successful implementation and realising the true potential of the policy, he added.
ICRA estimates that the population of vehicles older than 15 years would be 1.1 million units by the financial year 2024, offering significant potential for scrappage.
"However, given the nature of the usage of such vehicles, the actual scrappage potential could possibly be lower. Nevertheless, even if a proportion of these vehicles get scrapped, it can offer a fillip to volumes by spurring replacement demand and support the industry out of its trough. ICRA estimates that even with 15-20 per cent conversion, it can provide a 20-25 per cent upside to industry volumes in FY2024," the statement said.
