How to make the auto scrappage policy work

The government has said a new auto scrappage policy will be announced by November 15. The rules will have a direct bearing on many vehicle owners, as well as the auto industry. ET lists key areas the policy needs to focus on.

The To-Do List
First off, there must be a cut-off age for vehicles after which they should be scrapped. A kilometre-based criterion will not work in India because odometers can be manipulated.

Second, there should be separate age limits for different kinds of vehicles. For example, commercial vehicles should have a lower cut-off age than personal vehicles


GOVT SHOULD ALSO INCENTIVISE SCRAPPING. INCENTIVES CAN BE IN THE FORM OF:
1) Tax concessions for new vehicles
2) Automakers offering discounts to buyers who scrap vehicles
3) Govt and banks/NBFCs providing easier financing

Why the policy is urgently needed?
Likely to generate demand in a sector that’s pulling down GDP growth.

Sample this: India has 900,000 trucks aged 15-25 years (according to data from Kotak Institutional Equities). Scrapping a fifth of these will give a huge impetus to truck makers.

Scrapping vehicles will generate steel scrap worth Rs 11,500 cr annually, studies show. This will reduce imports.

Studies say scrappage can take 28 million polluting vehicles (mainly two-wheelers) off roads. This will help curb pollution in a big way.

Implementing the scheme for trucks and buses can bring down CO emissions by 17%, HC+NOX emissions by 18% and PM emissions by 24%.

How soon can it take off?
Two organised sector players have already announced ventures — CERO by Mahindra & Mahindra, and a JV between Maruti Suzuki and Toyota Tsusho.

SOME HICCUPS:
1) Setting up scrapyards will likely take more than a year (even for large corporates)
2) Replacement auto demand likely to be low in FY21
3) Transporters (trucks) and state govts (buses) may not be keen buy new vehicles if they are not offered easy financing and tax incentives.