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Home / News / India /  Explainer: How scrappage scheme could change India’s automobile sector

The recently announced vehicle scrappage scheme is likely to usher in significant change in the Indian automobile industry and is expected to generate demand for new vehicles, especially commercial vehicles. The automobile companies, Union and state governments will have to come together to form a unique ecosystem consisting of fitness centres and scrap yards to judge the condition of vehicles and then subsequently scrap it. The policy stipulates that both the government and automakers incentivize customers scrapping older vehicles.

How will the scrappage ecosystem work?

According to the new policy, commercial vehicles of more than 15 years and passenger vehicles of more than 20 years will have to be mandatorily scrapped if they don’t pass the fitness and emission tests. Also, government departments will have to let go of their vehicles after they are used for 15 years.

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Customers and fleet owners will have to get their vehicles tested after a certain period to ascertain their fitness depending on the tailpipe emission and other parameters.

Vehicle owners who would voluntarily scrap their vehicles will get a rebate on road tax in the range of 15% to 25% and complete waiver of registration fees on the next new vehicle purchase. Automobile manufacturers will also have to offer a discount of 5% against a certificate of vehicle scrapping. Also, vehicle owners will get a value for their old vehicles from scrap yards which will be around 4-6% of the price of a new vehicle.

Who will set up the scrap yards?

Automobile manufacturers such as Maruti Suzuki, Toyota and Mahindra and Mahindra have already announced their investments for setting up vehicle dismantling centres across the country as these carmakers expect these centres to generate significant revenue in the next few years once scrapping of vehicles becomes a practice. Other vehicle manufacturers are also likely to follow suit.

Nitin Gadkari, Union minister for road, transport and highways, has envisaged investments worth Rs10,000 crore from government and private entities for establishing vehicle fitness centres. He also expects both vehicle scrap yards and fitness centres to become a source for employment generation for the local people in the coming years. Most scrapyards are likely to be established in the four zones and they will also supply scrap steel and other components to automobile manufacturers and other industries.

Will this help generate demand for new vehicles?

According to auto industry executives, the new policy will help push commercial vehicle fleet owners to scrap their old trucks and small commercial vehicles. Also, the Union government’s proposal to levy an extra green cess on old commercial and passenger vehicles will push fleet owners to replace old vehicles with new ones.

Commercial vehicle manufacturers such as Tata Motors and Daimler India Commercial Vehicles have already said that this policy will help boost vehicles sales. According to the ministry of road transport and highways , there are 1.7 million old medium and heavy commercial vehicles in India without a valid certificate. Also, the number of light motor vehicles older than 20 years is more than 5.1 million. “We have long advocated for a well-designed, incentivized 'end of life' policy that boosts demand, improves safety, and supports the environment by encouraging commercial vehicle owners to exchange their older vehicles for new ones, meeting current emissions norms. Only a joint effort by government, industry and the customer can result in a scrappage policy that offers true safety, economic and environmental benefits," said Satyakam Arya, managing director and chief executive, Daimler India Commercial Vehicles.

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