Vehicle scrappage policy unlikely to impact demand: Crisil

The government-led vehicle scrappage policy draft seems unlikely to have a significant impact on demand, says global analytics firm Crisil, as per ANI.

The analytics firm states that its analysis comes in the wake of the government's decision to update the policy to the extent that only vehicles older than 20 years will be eligible to opt for the scheme from April 1, 2020, as opposed to vehicles older than 15 years as per the previous policy.

In its latest report, Crisil has argued that since 70,000 to 90,000 vehicles are scrapped every year on a regular basis, the new policy would not have much of an impact on the industry.

"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," the firm noted.

Furthermore, it has stated that 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.

"If we look at the various vehicle segments in the commercial vehicles industry, 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 highlighted.

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). For the unversed, the Ministry of Road Transport and Highways (MoRTH) on May 26, 2016, had drafted a policy stating that vehicles older than 15 years were eligible for benefits under the scrappage scheme.

Furthermore, the article states MoRTH's draft note on Voluntary Vehicle Fleet Modernisation Plan had proposed that vehicles bought on or before March 31, 2005, would be eligible for the scheme and a 50 percent waiver on excise duty, scrap value of the truck and additional discounts from the OEMs. However, two new updates were proposed by the ministry, directing a change in the age of the vehicle from 15 to 20 years, and an official rollout of the policy from April 1, 2020, coinciding with the implementation of BS-VI norms.

On a related note, the vehicle scrappage policy has been approved by the Prime Minister's Office and is awaiting approval from the Goods and Services Tax (GST) Council.