New Vehicle Scrappage Policy

Government’s New Vehicle Scrappage policy was recently cleared by the Prime Minister’s Office and is awaiting the approval of the GST Council.

The policy targets to take polluting vehicles out of the roads and help the automobile industry register higher sales.

The policy mentions about vehicles older than 20 years becoming eligible for benefits under the scrappage scheme.

The scheme would now come in effect from April 1, 2020, coinciding with the implementation of the BS-VI norms.

The new vehicle scrappage policy of the Centre is unlikely to have any significant impact on the automobile industry in terms of increased demand, according to rating agencies.

Also, analysts say the benefit offered under the scrappage policy would be 15% of the vehicle’s price. But this advantage would be muted as prices of diesel vehicles were expected to rise 10-15% once the new norms (BS-VI) come into force.

The total population of commercial vehicles that will be older than 20 years in fiscal 2021 would be 50,000 vehicles, much lower than the government’s earlier estimate of 2.8 crore vehicles. In any case, 70,000 to 90,000 vehicles are scrapped every year. So, it is believed that the impact of the scrappage policy will be limited.

Also, the proportion of commercial vehicles above 20 years would be one lakh to two lakh units. Besides, most of these older vehicles are used in rural areas and smaller towns by small fleet operators who operate used vehicles and have limited financial resources to purchase new vehicles. Thus, the proposed scrappage policy is unlikely to be materially positive for commercial vehicle demand.

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