Govt seeks auto industry's view on scrappage policy

Govt is ready to bring an incentive based scrappage policy for old vehicles

Automobile makers can look forward to some significant demand drivers in the near future, as the government is ready to bring an incentive-based scrappage policy for older vehicles.

Union Minister for Road Transport, Highways and Shipping Nitin Gadkari on Thursday invited suggestions from the auto industry to take ahead the scrappage policy, aimed at replacing 10-year-old vehicles with modern fuel-efficient ones that conform to emission standards.

“The Cabinet note on scrappage policy is ready with my ministry.  I am going to submit the note by this month and your (automobile industry) suggestions are invited,” Gadkari said at the inaugural session of the 2016 Auto Expo.

During a recent pre-Budget consultation meeting, Gadkari made a case before the finance ministry for incentive in the form of excise duty on purchase of new vehicles for buyers who surrender their old polluting vehicles.

Nitin Gadkari

Gadkari had earlier said the ministry was planning to introduce a scheme wherein a person would be entitled for a discount of up to Rs 50,000 on new purchase if the old one is surrendered. For small vehicles like cars, the incentive could be up to Rs 30,000. Besides, there would be tax exemptions and the total benefit for bigger vehicles like trucks could be up to Rs 1.5 lakh. Such ‘cash-for-clunkers’ schemes have been introduced in some countries like the US, UK, Germany, France and Spain, for a limited period.

Industry body-Society of Indian Automobile Manufacturers (SIAM) has also sought a temporary incentive for replacing old vehicles with new. The association has suggested 15 years as the age of retirement of two- and three-wheelers and passenger and commercial vehicles. It has said the replacement will help improve air quality in cities and make vehicles safer and consumption of fuel more efficient.

SIAM has suggested a cash incentive of Rs 4,500 for two-wheelers, Rs 13,000 for three-wheelers, Rs 80,000 for a passenger vehicle and Rs 90,000 for a commercial vehicle. The incentive is to be offered on the purchase of the next vehicle.

SIAM estimates 30 million vehicles, 80% of which are two-wheelers, are older than 15 years.

Sales of two-wheelers grew by just 0.86% in 2015. Sales of motorcycles, which make up for over 60% of two-wheeler sales, declined more than 3%. This was offset by 13% growth in scooter sales.

Siam has indicated the government might lose Rs 56,665 crore because of the retirement incentive, half of which will be needed to scrap 3.6 million passenger vehicles. A total of 2.77 million passenger vehicles were sold in the country in 2015. The revenue generated by the government from new sales will be higher than the outgo, according to Siam.