New vehicle scrappage policy

• The policy targets to take polluting vehicles out of the roads and help the automobile industry register higher sales.
• The policy mentions about vehicles older than 20 years becoming eligible for benefits under the scrappage scheme.
• The scheme would now come in effect from April 1, 2020, coinciding with the implementation of the BS-VI norms.

Analysis:

• The total population of commercial vehicles that will be older than 20 years in fiscal 2021 would be 50,000 vehicles, much lower than the government's earlier estimate of 2.8 crore vehicles and our internal estimate of 640,000 vehicles. In any case, 70,000-90,000 vehicles are scrapped every year. So, we believe the impact of the scrappage policy will be limited.
• Although the benefit offered under the scrappage policy is expected to be 15 percent of the vehicle's price, the effect will be muted as prices of diesel vehicles are expected to go up by 10-15 percent once the new norms come into force.
• There are very few vehicles would actually be older than 20 years in the current vehicular population. Medium and heavy commercial vehicles (M&HCVs) that typically have a life of 20 years would be eligible under the scrappage scheme. Under M&HCVs, medium commercial vehicles (16-tonne gross vehicle weight) would benefit the most, while the number of multi-axle vehicles, intermediate commercial vehicles (ICVs), tractor trailers, and light commercial vehicles opting for the scheme would be very limited,.
• The report said additional benefit from the policy, which is scheduled for implementation from April 1, 2020 along with the implementation of BS VI norms, is expected to spur demand for commercial vehicles to some extent when vehicle prices will increase because of change in emission norms (from BS IV to BS VI).

By: Vishal