How Vehicle Scrappage Policy Can Boost the Automobile Industry in India?

The government recently announced the vehicle scrappage policy that aims to phase out the unfit and polluting vehicles in the country and boost the automobile sector. While announcing the policy, the Union Minister of Road Transport & Highways, Nitin Gadkari termed it as a win-win situation for all parties in the industry. “It is a major step towards boosting the automobile industry that is facing a downturn due to covid-19. The policy will make India the largest automobile hub in the world in the next five years,” he said.

The automobile industry is one of the major growth drivers of the Indian economy. It is the backbone of the manufacturing sector in the country, contributing to more than 40% of India’s manufacturing GDP. However, the outbreak of coronavirus has pushed the auto industry into a crisis. The nation-wide lockdown not only led to the shutting down of the manufacturing facilities but also reduced automobile sales across the country. This closure of production units also negatively impacted the fortunes of small and medium enterprises in the automobile industry involved in auxiliary parts manufacturing.

The government has been taking several initiatives such as the PLI scheme to revive the pandemic-hit automobile industry and boost its performance. Under the PLI scheme, the government announced INR. 52,042 cores for the automobile and auto components sector for the period of the next five years. Another such step in the same direction is the recently announced vehicle scrappage policy, also known as the voluntary vehicle-fleet modernization program.

Now let us look at how this new and first-of-its-kind scheme will help to boost the domestic automobile industry.

Improve the Availability of Automobile Raw Materials

The vehicle scrappage policy will create a comprehensive ecosystem for phasing out the old and defective vehicles. According to the scheme, vehicles, both private and commercial will undergo tests in the fitness centres to ensure their fitness. The private vehicles which are older than 20 years will be de-registered if they fail to meet the fitness criteria. The commercial vehicles which are older than 15 years will be de-registered if found unfit. It is also proposed under the scheme that all the government vehicles will be de-registered and scrapped after 15 years from the registration date. Different criteria to determine the fitness of the old vehicles will be emission tests, braking, safety equipment, and others as per the Central Motor Vehicle Rules, 1989.  The scrappage of old and unfit vehicles will increase the availability of raw materials such as plastic, steel, etc. for the automobile industry. The scrapping of the old vehicles will also generate demand for new vehicles in the industry.

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Increase the Sales of New Vehicles

The scheme also proposes certain incentives to vehicle buyers on the scrappage of their old vehicles. Some of the proposed incentives for new vehicles against the scrapping certificate issued by the government-authorized scrapping centres include a 5% discount on new vehicle purchases, registration fee waive-off, road-tax rebate, etc. This would boost the sales of automobiles in the country by encouraging more and more customers to undergo fitness tests.

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Formalizing the Informal Vehicle Scrappage Industry

The policy would formalize the vehicle scrappage industry and provide employment opportunities to more people in the country.  On the whole, it would help to reduce air pollution, improve road safety, and improve the automobile industry raw material availability, in addition to formalizing the informal vehicle scrappage industry. Moreover, it would also provide opportunities for MSMEs in the country by enabling them to take part in the recycling of raw materials following the scrappage of the vehicles.

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