Budget 2021: Vehicle scrappage policy to help commercial vehicle makers

Auto industry says move will largely impact sale of commercial vehicles like buses and trucks but is unlikely to give a fillip to sale of personal vehicles

Incentivising motorists and freight operators to purchase new vehicles and discouraging the operation old ones is going to be the crux of the vehicle scrappage policy.

“A voluntary scrappage policy is to be launched, aimed at reducing vehicular pollution. There will be a fitness test after 20 years for personal vehicles, 15 years for commercial vehicles,” finance minister Nirmala Sitharaman said in her budget speech today.

“The vehicle scrappage policy will not take off if adequate incentives are not given to those who are looking to scrap. We have made this very clear in our representations to the government several times and they are fully cognizant of this,” said Pawan Goenka, managing director and CEO, Mahindra and Mahindra.

It is important to ensure that the policy plugs all loopholes and is not misused, he said. “We have waited for long enough and it is okay to wait for a month or two more to get the policy right,” said Goenka. In addition to an economic recovery which will spur demand of heavy duty trucks, a policy that incentivises scrapping of old, polluting trucks, will help overall recovery. The heavy duty truck segment has been declining for close to two years, he pointed out.

Sources said that after scrapping their old vehicles, the new ones may be entitled to a waiver of registration fee and a discount on road tax. The incentives have been proposed by the Ministry of Road Transport and Highways (MoRTH) in its long-pending draft vehicle scrappage policy.

However, executives of the automobile industry said that the move will largely impact sale of commercial vehicles like buses and trucks, but is unlikely to give a fillip to sale of personal vehicles.

“A very small percentage of owners use cars or two-wheelers beyond 15 years. An even smaller proportion goes for renewal of licence,” said an executive of a carmaker.

It is however going to benefit the entire value chain of commercial vehicles ranging from vehicle makers to ancillary making companies including tyre and component manufacturers

As part of the discouraging old vehicle, the ministry of road and transport recently announced imposition of “green tax” on old, polluting vehicles. The proposal will go to the states for consultation before it is formally notified.

According to the proposal, green tax will be imposed on transport vehicles older than eight years at the time of renewal of the fitness certificate — at the rate of 10-25 per cent of road tax. Personal vehicles will also be charged the same levy at the time of renewal of registration certification after 15 years

The government estimates that vehicles older than 15 years constitute about five per cent of total fleet but account for 70 per cent of vehicle pollution.

Rajeev Singh, Partner and Automotive Leader, Deloitte India says the scrappage policy though voluntary will likely become mandatory as fitness certificate will be made mandatory as part of the  policy.  “It's a soft step towards coming up with mandatory,” says Singh. In dearth of a proper infrastructure, just introduction of a fitness certificate may not be enough. The government will also need to build the necessary infrastructure to get this to action on-ground, he added.

Strong push in Infrastructure building - roads, railways, economic corridors will help boost demand for heavy & medium duty CV’s”.

Fleet owners however said that the amount of benefit to scrap old vehicles will be crucial as otherwise it will increase cost for them. Around 2 per cent of commercial vehicles are older than 15 years, according to a calculation by brokerage firm Nomura.

“Merely imposing a green tax is not the way. If not well compensated, it will be passed on through higher truck rentals and instead harm the economy,” said S P Singh, senior fellow at the Indian Foundation of Transport research and Training.