Auto scrappage policy: Devil could be in the details

When the green tax on ageing vehicles was proposed last week, it was assumed that it meant the end of the road for a vehicle scrappage policy.

For, scrappage would involve compensating the dealers for incentives doled out to customers on buying new vehicles and the government could not afford the fiscal burden in an already stretched year. A green tax on the other hand, would do the twin jobs of shoring up the exchequer’s revenues as well as encouraging owners to replace their old vehicles to avoid the tax.

Pent-up demand

Given this backdrop, the announcement on a scrappage policy for personal and commercial vehicles is good news for big listed auto makers such as Maruti, Mahindra & Mahindra, Tata Motors, Ashok Leyland, Eicher Motors, Hero, Bajaj and TVS. While sale of personal vehicles such as cars and two-wheelers have seen a rebound after the lockdown, uncertainties still remain on whether the offtake so far is just pent-up demand or a cyclical upturn. Commercial vehicle sales have been on a sticky wicket, though some segments like light vehicles and haulage vehicles have seen a pick-up.

Data from the Indian Foundation for Transport Research and Training on freight rates in key routes across the country show that in last few months until November, fleet utilisation and rentals have been supported more by one-offs such as non-availability of trucks due to localised lockdowns, festival season demand and rise in diesel prices. Without such support in December, as well as lacklustre demand for industrial and consumer goods, freight rates dropped. Demand for haulage of agricultural goods has been the only constant. However, it may be too early to rejoice now as the contours of the scheme are yet to be known.

Contours hold the key

The scrappage scheme has undergone three iterations till date.

The Voluntary Vehicle Fleet Modernisation Programme (V-VMP) outlined in May 2016 proposed that vehicles (predominantly trucks) bought prior to March 31, 2005 or those below BS IV emission standards, would be eligible for incentives if they were scrapped and replaced with new ones. Owners would get 50 per cent waiver on excise duty on the new vehicle, discounts from the auto manufacturers and the scrap value of the vehicle.

In 2018, the age of vehicles to be scrapped was increased to 20 years, sharply shrinking the number of eligible vehicles. Also, the implementation date was set to 2020

Now, the age has again been revised with personal vehicles to undergo fitness tests after 20 years and commercial vehicles after 15 years.

For a scheme which is voluntary, attractive scrap value for the old vehicle, GST incentives and discounts on the new vehicle as well as adequate scrapyard facilities will be key to achieving the objective of reducing pollution as well as boosting auto sales.

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