The voluntary vehicle scrappage policy under the Indian Union Budget 2021-22 will drive the sales of new fuel-efficient and environment-friendly vehicles, says GlobalData, a leading data and analytics company.
In the past few years, India’s auto industry has been witnessing subdued sales volumes and production declines stemming from both the macroeconomic and COVID-19 related issues. The reduction of the general sales tax (GST) on vehicles and the vehicle scrappage policy are the two main ingredients to revive the Indian auto industry.
The average operational life of a passenger vehicle in India stands at more than 25 years. As a result, older vehicles constitute a significant share of the present vehicle parc or vehicle in operation volume. Incentives offered in lieu of scrapping unfit old vehicles and other policy frameworks such as green taxes will bring down average vehicle lifetime on road.
Bakar Agwan, Senior Automotive Consultant at GlobalData, comments: “The voluntary scrappage of unfit old vehicles, aging more than 20 years, will bring in significant new volume sales of more fuel-efficient vehicles in the market. The policy mandates vehicles over 15 years of age to get a fitness certificate and the non-qualifying ones will be put off the road, indicating a mandatory scrappage of unfit vehicles.”
According to GlobalData’s Automotive Intelligence Center, India had a light vehicle parc of 37.4 million vehicles in 2019, with growth to 44.7 million vehicles forecast by 2024. Vehicles aged 13 years and older constitute 12.7% or 4.74 million units of the total parc, with more than half of that total being more than 20 years old.”
Without the scrappage policy, GlobalData expects the vehicle parc of vehicles aged 13 years and older to grow at a CAGR of 14% between 2019 and 2024.
Mr Agwan concludes: “The scrappage policy implementation for government vehicles makes complete economic sense and it ought to offer several benefits to OEMs as well as all tiers of component suppliers. The policy, if implemented successfully, will also reduce import of raw material for vehicle manufacturing. The government now needs to develop an ecosystem for bringing it to a mass-scale; setup a network of fitness testing centers, scrapping centers, waste disposal and recycling techniques. A robust scrapping network will make the policy a success in India by creating required demand stimulus for new vehicles.”
