The Automotive Associations Cheer The Scrappage Policy

Finance Minister Nirmala Sitharaman announced the much-awaited Voluntary Vehicle Scrappage Policy in the General Budget 2021-22. According to the new policy, 15-year-old commercial vehicles will be scrapped and will not be allowed to run on the road. On the other hand, personal vehicle 20 years. That is, old vehicles can now be scrapped after 20 years. Earlier, 15-year-old private vehicles were removed from the roads.

It is expected that it would be similar to United State's 'Cash for clunker scheme'. The purpose of the scheme was to provide residents with an economic incentive to purchase a new, more fuel-efficient vehicle while trading in a less fuel-efficient vehicle.

Industry Reaction

Kenichi Ayukawa, President, SIAM said “The budget focusses on three broad themes -

· Remedy the current challenges post-Covid through focus on human health and asset reconstruction

· Give a major impetus to infrastructure with a 5-year roadmap for fiscal consolidation

· Take bold measures for enhancing efficiency and competitiveness like privatization, competition in power distribution companies, CGD expansion in 100 more districts and enablers like infrastructure financing.

Good macro-economic growth will translate to good demand for Auto Sector also.” 

The announcement of major highway projects with a sizeable increase in infrastructure outlay will help revive demand for both commercial vehicles and private vehicles. The allocation for procurement of 20,000 buses will directly benefit the industry. The addition of 100 new districts to the City Gas Distribution network for natural gas will help clean, efficient and affordable mobility for the country.

While SIAM awaits the details of the Vehicle Scrappage scheme, it hopes and requests that fitness testing and certification should be much earlier and at frequent intervals to ensure safety, environment friendliness and fuel saving. 

The reduction in customs duty on some steel grades, and revoking of countervailing duty and anti-dumping duty on certain steel products is a welcome step. Since Platinum, Palladium and Rhodium are not available in India and are essential for emission control, their duty could have been made Nil. The increase in customs duty on Auto parts/Lithium-ion cell parts is of concern and is likely to increase the cost of manufacturing automobiles, wherever indigenization is yet to happen."

Vinkesh Gulati, President FADA said “FADA is happy to note that the Hon’ble Finance Minister has finally announced the much-awaited Scrappage Policy, though voluntary to phase out old vehicles. If we take 1990 as base year, there are approximately 37L CVs and 52L PVs eligible for voluntarily scrappage. As an estimate, 10% of CV and 5% of PV may still be plying on road. We still need to see the fine prints to access the kind of incentives which will be on offer and thus have a +ve effect on retail. The 6,575 km Highway works proposed in Tamil Nadu, Kerala, West Bengal and Assam and another 19,500 km work for Bharat Mala project will definitely add fillip to much needed revival of Commercial Vehicles especially M&HCV segment. 

The government’s reduction of customs duty on steel products to 7.5% will benefit Auto OEMs. We hence expect the benefit to trickle down to end customers thus helping in boosting of demand. While we expected disposable income for individuals to increase with enhancement of IT slabs and depreciation benefit on vehicles for individuals, the same has not been taken into consideration.”

Deepak Jain, President ACMA, said, “Announcements with regards increased spend on road infrastructure, voluntary scrappage policy, Research & Development and PLI among others, augur well for the automotive sector. Further, continued focus on building rural and agricultural infrastructure and prioritizing agriculture credit growth will have long-term positive impact on rural demand for vehicles”, Jain further mentioned, “Increase in basic customs duty on select auto components will encourage local manufacturing of such items. It is also heartening that the budget outlay for the MSME sector has been doubled compared to last year. The auto component industry is dominated by MSME and this will provide them the necessary succour as the industry recovers.”

“Government’s reconsideration of Custom Duty Policy aimed at promoting domestic manufacturing is a highly welcome move. Inverted duty structure in the tyre industry has created an uneven playing field and we look forward to the new customs duty structure which will be put in place by Oct 2021”, said K M Mammen, Chairman ATMA. 

Allocation of Rs 18K crore to support augmentation of public bus transport services will have a multiplier effect giving a fillip to the tyre sector as well. The creation of a dedicated Development Finance Institution (DFI) is a very significant move as long gestation infra funding needs long term commitment. In this context, the launch of National Asset Monetisation Pipeline will augment the revenues of the government to fund new infra projects. As wheels of the nation, Tyre industry is all set with increased capacities to aid in the infra development, added Mammen.