While the vehicle scrapping policy has the right intent, the incentives are insufficient to trigger much replacement, says Jefferies, a financial services firm, in its report. It pointed out that a vehicle owner can usually get scrap value of about 2-3% of vehicle price in the market, and hence the incremental incentive from the policy appears minimal.
The policy, which was proposed in Parliament last week, offers a monetary value close to 4-6% of the showroom value. There could even be up to 5% discount on the purchase of a new vehicle if a scrap certificate is produced. It also offers a 25% discount on road tax and proposes to de-register vehicles that fail fitness tests or are unable to renew registrations after 15 to 20 years of use.
“We also believe the original equipment manufacturers (OEMs) are unlikely to offer additional discounts at a time when demand is already recovering and companies are facing severe margin pressure due to elevated commodity prices,” the report said. “The policy proposes to de-register commercial vehicles after 15 years and private vehicles after 20 years of use, if these fail the fitness test or are unable to renew registration certificates. As a disincentive measure, the policy suggests an increase in fees for fitness certificates for CVs and re-registration for private vehicles after 15 years of use.”
It said mandatory fitness testing for heavy CVs is expected to start from April 2023 and for other categories from June 2024. The draft notifications are expected in the next few weeks and will be in public domain for stakeholder feedback for 30 days.
“As per the government, around 1.7 million medium and heavy commercial vehicles and around 5.1 million light motor vehicles are older than 15 and 20 years respectively. This appears significant versus our FY22 new vehicle sales estimate of 259 thousand units for M&HCVs and 3.3mn units for PVs,” the report said.