India Economy

Policy uncertainties take auto industry for a ride

Parvatha Vardhini C | Updated on August 19, 2018 Published on August 19, 2018

The JV company will participate in the automobile freight train operator (AFTO) policy of the Ministry of Railways MarioGuti/iStockphoto MarioGuti/iStockphoto

The path to green mobility has already seen multiple detours

There is news that the much-expected scrappage scheme for old vehicles is back on the drawing board. With uncertainty over the 2030 electric-vehicle deadline also continuing, auto manufacturers are having a tough time second-guessing the government.

Rethinking scrappage

According to reports the long-expected proposal to scrap old vehicles is now seeing a fresh round of discussions. Three years have already elapsed since the scheme was first put forth by Transport Minister Nitin Gadkari in August 2015.

Following this, in May 2016, the government outlined the contours of what it called the Voluntary Vehicle Fleet Modernisation Programme (V-VMP). It proposed that vehicles ( predominantly, trucks) bought prior to March 31, 2005 (i.e. those older than 10 years then), or those below BS IV emission standards, would be eligible for incentives if they were scrapped and replaced with new ones. Those who scrap their vehicles would get 50 per cent waiver on excise duty on the new vehicle and discounts from the auto manufacturers, in addition to the scrap value of the vehicle.

However, nothing more was heard about it until February this year when the draft National Auto Policy released by the Ministry of Heavy Industries stated that the scrappage scheme will soon be implemented by the government. Following this, in March 2018, it was announced that the policy had received an in-principle approval of the Prime Minister’s Office, and was awaiting a go-ahead from the GST Council.

But this time, the policy that emerged was a diluted version of the originally proposed V-VMP. The age of vehicles to be scrapped was increased to 20 years, sharply shrinking the number of vehicles that would be eligible for scrapping. Also, the implementation date was pushed to 2020.

Now, with the policy going back to the discussion table, it raises doubts as to whether it will see the light of the day before the current government’s term ends in May 2019.

U- turn in e-vehicles

There is uncertainty not only in scrapping of old vehicles, but also over the deadline for having electric vehicles on the country’s roads. After fast-tracking all auto manufacturers to lay out e-vehicle plans, the government seems to have developed cold feet.

Last year, the Transport Minister declared that the government is gunning for an all-electric fleet in the country by 2030, and followed it up by disincentivising even hybrid vehicles by slapping higher taxes on them under the GST regime. But earlier this year, Gadkari stirred up a hornet’s nest by declaring that the government would not formulate a separate policy for electric vehicles. Accordingly, the draft National Auto Policy stopped short of equating green mobility to only e-vehicles. It instead called for a “technology-agnostic” roadmap for green mobility through the evolution of emission regulations.

Alongside these developments, Phase I of FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicle) scheme, which incentivises hybrid vehicles along with electric vehicles, was extended after its expiry in March 2017 — first, to March 2018, and now, further till September 2018. These moves put manufacturers of hybrid vehicles in a spot as there are left wondering whether the government is actually for or against hybrids.

The earlier, the better

Both the scrappage scheme and the electric vehicle roll-out are not easy to bring about as they involve multiple challenges. Having newer vehicles on road will reduce pollution, but it is imperative that scrapyards are in shape to take the load. Also, the government should have the fiscal wherewithal to bear the reduced GST rate on replaced vehicles and to compensate the auto manufacturers for the discounts they have to provide.

Electric vehicles, too, require support for domestic manufacturing, for charging infrastructure to be built across the length and breadth of the country, and for rolling out subsidies to consumers for mass adoption.

However, the sooner the government is able to arrive at a consensus with the various stakeholders, the better it will be. Policy uncertainties put manufacturers on the back foot. More importantly, with vehicle pollution impacting the quality of our lives like never before, it is in our own interest that the government bites the bullet soon.

Published on August 19, 2018

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