The government hopes the policy laced with incentives would drive vehicle sales and help the auto industry that has been experiencing sluggish demand for about a year.
A person aware of the development said NITI Aayog has raised concerns on the draft policy prepared by the Nitin Gadkari-led ministry concerning the definition of the life or age of a vehicle that will prompt their owners to scrap them, saying it may result in an economic loss for the vehicle owner.
“NITI Aayog was also not happy with the financial incentives (discounts) that the ministry had planned to offer as it feared that India may face the same fate as the US after it implemented the Cash for Clunkers scheme that provided financial incentives to car owners," the person said, requesting anonymity.
Cash for Clunkers scheme was implemented in the US a decade ago during the global recession. The scheme was abruptly stopped after the US government spent about $3 billion towards it but it did not actively stimulate the US economy by promoting replacement of older vehicles with newer ones.
As far as incentives are concerned, the road ministry is looking at giving rebates on road tax upon showing the certificate of scrapping by a vehicle owner, the person said. “The government is still deliberating on this and is yet to be finalized," the person said.
The developments come amid a slowdown in the automobile industry reflected by a wider slowdown in the Indian economy, damped market sentiments and subdued farm incomes.
In August, finance minister Nirmala Sitharaman announced several steps for the auto sector, including a scrappage policy for automobiles, which is aimed at increasing production and capacity utilization. This followed a draft of the proposed policy which was first prepared by the road ministry in 2015 but failed to pass muster with the finance ministry on concerns of revenue loss.
The road ministry is currently working on the broad contours of the policy that will identify unfit vehicles for scrapping through a testing system, and will take steps to ensure enforcement of pollution and fitness regulations by state and the Centre, a senior government official said.
“There is a discussion on what the life or age of the vehicle (that is ready to be scrapped) should be. Whether it should be 12 years, 15 years nor nothing at all is still being discussed," the official said.
Separately, the road ministry issued draft guidelines in October to set up vehicle scrapping centres in the country, to protect the environment and promote a legally-backed dismantling and scrapping industry.
Experts said the proposed scrappage policy will be the biggest driver of growth for the domestic auto industry in the short and medium term. However, the government has to be careful while drafting the scheme to plug loopholes so that it is not misused.
“Right now, there is no clear direction on whether the government will give incentives or not and if there will be some support, than to what extent, whether incentives will be given by OEMs," said Puneet Gupta, associate director at IHS Markit. “In a country like India, where per capita income is $1,500 (per annum), consumers may not want to scrap their vehicles, especially in the rural market. That is why the government may keep scrapping vehicles voluntary," Gupta said.
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Never miss a story! Stay connected and informed with Mint.
our App Now!!