Scrappage plan has sops for buying new vehicles, pain for driving old ones

Automakers count on the new policy to boost sales that crashed when the coronavirus pandemic pulled down India’s economy.
The Centre on Thursday announced the much-awaited vehicle scrapping policy, seeking to “increase business and employment, and reduce pollution and road hazards created by old vehicles”.  

Through this policy, the government is looking to incentivise scrapping vehicles older than 15 years and replacing them with new ones, while discouraging the use of old vehicles. “The scheme targets multiple problems at one go,” Nitin Gadkari, minister of road transport and highways, said, making a statement on the policy in the Lok Sabha.

The road ministry has proposed to cut goods and services tax (GST) and road tax on new vehicles. State governments will be advised to offer a road tax rebate of up to 25 per cent for personal vehicles and up to 15 per cent for commercial vehicles. Automobile makers also have been told to give a discount of 5 per cent to consumers buying a new vehicle against the scrapping certificate.

The policy is similar to the “cash for clunkers” scheme in the US and major European nations, started during the economic crisis of 2008-09 to speed up sales of new vehicles in order to stimulate their economies. It has scope for an additional investment of Rs 10,000 crore and 35,000 new jobs, said Gadkari.

While automakers in India have been pushing the government for years to give incentives to car and truck owners to scrap old vehicles for new ones -- a move they expect will help boost their sales -- industry executives pointed out that the government was offering little from its side to incentivise customers to scrap their old vehicles and had put the onus on vehicle manufacturers.

Auto sales have been hit by a widespread fall in demand amid the pandemic-induced recession. The policy, which will give a boost to demand for trucks and buses more than personal vehicles, is seen to benefit commercial vehicles (CV) manufacturers like Tata Motors, Ashok Leyland, and Volvo Eicher Commercial Vehicles.

“Provisions in the policy, such as compulsory fitness certificates and disincentivising re-registration of older vehicles, address the intents of all stakeholders. We are optimistic and look forward to seeing how various provisions encourage customers to voluntarily come forward and scrap their old and unfit vehicle,” a spokesperson for Tata Motors said.

Gadkari said he had requested Finance Minister Nirmala Sitharaman to reduce GST for customers taking the benefit of the scrappage policy. “We have envisaged that there will be additional investment of Rs 30,000-40,000 crore from buying new vehicles and hence there can be an opportunity to reduce GST,” Gadkari said. However, he stated that no decision had been taken in regard to that and it depended on the GST Council.

An industry executive said, “The Centre has asked state governments to cut road tax, which is not certain. It is hoping for a reduction in GST, which, considering the state of government finances, is very hard. So, ultimately the onus of incentivising the customer lies on automakers, which themselves are struggling to maintain a margin.”

Incentivising the customer is a crucial part of the policy, pointed out executives of auto companies, as most consumers having more than 15 or 20-year-old vehicles are those who are conscious about spending on a new car or senior citizens who may not find it lucrative enough to scrap their old cars and buy new ones.

“I don’t think anyone in India is going to scrap anything unless there’s a really strong reason for them to do it and the value of the incentive is pretty high, given that it’s voluntary,” Mahindra Executive Director Rajesh Jejurikar had said while addressing analysts after the recent earnings call.

The scheme also proposes to increase re-registration fees for heavy commercial vehicles to Rs 12,500; for personal vehicles like car, it is Rs 5,000, more than eight times the current amount of Rs 600. The increase in fees for the renewal of registration and fitness certificate is intended to discourage the use of older vehicles. According to the proposal, the delay in renewing the registration of private vehicles would attract Rs 300-500 penalty per month, while the delay in renewal of fitness certificate for commercial vehicles would attract a daily penalty of Rs 50.

As part of the policy, the government has also planned to set up integrated scrapping facilities across the country, where vehicles will undergo a fitness test. The parameters of the test include vehicle emission, braking, and safety equipment. A senior official of the road ministry said the government planned to set up 50 scrapping centres across India by December 2023, under a public-private partnership model, in order to plug the gap in infrastructure support.

Currently, two facilities – one each in Noida and Chennai -- developed by a joint venture between state-owned MSTC and Mahindra, are authorised to do vehicle scrapping while a large section is handled by informal small-scale outfits, raising questions about the ecological hazard.

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