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A well-directed scrappage policy will help Indian automotive market recover from slowdown, says GlobalData

A well-directed scrappage policy will help Indian automotive market recover from slowdown, says GlobalData

Following the news that the vehicle scrappage policy for India will be implemented soon;

Animesh Kumar, Director of Automotive Consulting at GlobalData, a leading data and analytics company, offers his view:

“A ‘well-directed’ scrappage policy will help the Indian automotive market recover from one of the worst ever slowdowns. The industry has been waiting for the scrappage policy since a long time and especially after the government proposed amendments to the Motor Vehicle Act to allow scrapping of 15 years or older vehicles.

“An all-encompassing scrappage policy that includes end-of-life vehicle norms has several benefits. They include increase in safety, environment-friendliness and growth in new-vehicle demand. It will also help in creating opportunities for players in the scrappage and recycling industry. At a time when the automotive industry in India is experiencing a painful slowdown, the market participants are waiting for the implementation of the policy to revive the market through the creation of replacement demand.

“The most effective policy will make it ‘mandatory’ to discard vehicles that are old and/or do not meet the criteria of road-worthiness and emissions. While it is unlikely that the government will make it mandatory, it will certainly be the most effective approach as it will compel the owners to scrap such vehicles.

“Even if the national scrappage policy does not mandate scrapping of older vehicles, it must ‘encourage scrapping’ and/or ‘discourage re-registration’. Customers can be encouraged to scrap older vehicles in exchange of incentives or subsidy. The inclusion of incentives for voluntary scrapping of vehicles – similar to ‘Cash for Clunkers’ program used in the US in 2009 –  will encourage vehicle owners to trade-in their old vehicles. The Government can also ‘subsidize’ the next vehicle purchase – i.e., for customers who voluntarily scrap their vehicles - through the exemption or discounts on registration charges.. The Government can ‘discourage re-registration’ of older vehicles by increasing the re-registration fees. It is likely that the government will pick ‘voluntary’ over ‘mandatory’ and will promote voluntary scrapping of older and polluting vehicles through a combination of incentives/subsidy and increased cost of re-registration.

“The industry stakeholders are keen to know the structure of the scrappage policy that has been cleared by the Ministry of Road Transport & Highways (MoRTH) and is now awaiting clearance from the cabinet. Even if the government does not include mandatory de-registration of older vehicles, it will still be an extremely encouraging move. It will be the first step in the journey towards a robust vehicle scrappage program that will generate regular demand for replacement vehicles and usher in safer and greener vehicles.”