New vehicle scrappage policy may need tinkering

New vehicle scrappage policy may need tinkering

Context

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.

The Draft Policy

• The policy, cleared by the Prime Minister’s Office and awaiting the approval of the GST Council, targets to take polluting vehicles out of the roads and help the automobile industry register higher sales.
• The draft policy, released by the Ministry of Road Transport and Highways in May 2016, mentioned about vehicles older than 15 years becoming eligible for benefits under the scrappage scheme but the criteria was reworked with benefits being applicable to vehicles older than 20 years.
• The scheme would now come in effect from April 1, 2020, coinciding with the implementation of the BS-VI norms.

Number of vehicles

CRISIL

• 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 and our internal estimate of 6,40,000 vehicles
• In any case, 70,000 to 90,000 vehicles are scrapped every year. So,the impact of the scrappage policy will be limited.

ICRA

• The proportion of commercial vehicles above 20 years would be one lakh to two lakh units
• 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.
• Around 70,000 to one lakh vehicles are scrapped on an annual basis.
• As a result, the potential impact of the proposed policy on commercial vehicle sales will be limited