February 25, 2021

Budget 2021: Scraping policy brings some good news for India’s stumbled automobile sector

_automobile scraping_pgImage: Shutterstock

India has finally announced a vehicle removal policy — which has been in operation for more than seven years. On February 1, presenting the Union Budget, Finance Minister Nirmala Sitharaman announced a policy of voluntary vehicle disposal to remove old and ineligible vehicles. “This will help promote fuel-efficient, eco-friendly vehicles and thus reduce vehicle pollution and oil import bill,” he said. “Vehicles will be subjected to fitness tests at automated fitness centers after 20 years in the case of personal vehicles and after 15 years in the case of commercial vehicles.” Road Transport Minister Nitin Gadkari explained that the government would announce the details of the project within 15 days. A study by HDFC Bank last year estimated that the move to allow the removal of vehicles would create a $ 6 billion business. “If we take 1990 as the base year, about 37 lakh commercial vehicles and 52 lakh passenger vehicles are eligible for voluntary disposal,” said Vingesh Gulati, president of the Federation of Automobile Dealers’ Associations. “According to one estimate, 10 percent of commercial vehicles and 5 percent of passenger vehicles may still be running on the road. Since the second half of 2019, automobile sales have been declining, largely due to the economic downturn and the Automobile Manufacturers Association of India (SIAM) predicts that vehicle sales are likely to fall by 25 per cent to 45 per cent this year, while passenger vehicle sales are expected to decline by 16 per cent per annum from April to December. Passenger car sales fell more than 20.3 percent to 17,77,874.

The voluntary scraping policy is expected to trigger new purchases in exchange for government incentives. “The introduction of the Voluntary Vehicle Scrapage Policy will not only create a safer and more environmentally friendly automotive sector, but will also increase the demand for alternatives in this sector,” says Gurpratab Boparai, Managing Director, Kota Auto Volkswagen India Pvt. In January, the Ministry of Roads proposed to impose a green tax on old vehicles, which will be taxed at 10 percent to 25 percent of the road tax when the fitness certificate is renewed for cars over the age of eight. However, for personal vehicles, the tax will be levied at the time of renewal of registration certificate after 15 years. Revenue collected from green tax should be kept in a separate account to be used for dealing with pollution. “Announcements on increased spending on road infrastructure, voluntary scrapage policy, research and development and PLI are helping the automotive industry well,” says Deepak Jain, president of the Automobile Equipment Manufacturers Association of India. “Furthermore, the continued focus on creating rural and agricultural infrastructure and prioritizing the development of agricultural credit will have a long-term positive impact on rural demand for vehicles.”

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