The central government in mid-April announced its long-awaited vehicle scrappage policy. Under the new policy, in case of failure to get a fitness certificate, commercial vehicles will be de-registered after 15 years. Private vehicles will be de-registered after 20 years if found unfit or in case of a failure to renew registration certificates
There are approximately 50 lakh vehicles in India that are older than 20 years, approximately 35 lakh vehicles older than 15 years, and approximately 15 lakh older than 15 years without renewed fitness certificate.
As per a draft notification released by the government, customers of new vehicles could get concession on road tax rates of up to 25%. Apart from the rad tax discount, 5% discount on purchasing new vehicles, scrap value at 4-6% of the ex-showroom price of new vehicle, and waiver of the registration fee for new vehicle purchased on scrapped vehicles are proposed.
We believe offering a discount of 5% on scrapping older vehicles seems like a loss-making business for OEMs and other stakeholders, and then it might be settled on approximately 1-2% discount. Since auto OEMs have already invested a lot and faced significant losses during levies relating to insurance, safety norms like ABS and BSVI transition.
Moreover, it is more likely that OEMs will pass on this extra cost to end customers. As the industry is already reeling under a load of soaring commodity prices, especially steel and rubber. Hence, we are certain that the vehicle prices will go up just before the implementation of the scrappage policy on April 1, 2022.
The winnability of the scrappage policy depends on the auto OEMs and other stakeholders. As we require an ample number of Automated Fitness Centres and scrapyards to create a proper environment for scrapping the vehicle. The fitness centres will keep records of the fitness of vehicles, the criteria of which includes braking test, emission test, and checking of safety components as per the regulations. The government aims for ~700 fitness centres. (Target of one in each district)
Apart from the fitness centers, many modern and compliant scrapyards would be required across the country to carry out this enormous task. Identifying locations and obtaining green clearances for these scrapyards will be another challenging task. PSR
Aditya Kondejkar is Research Analyst – South Asia Operations, for Power Systems Research
