The auto industry has witnessed a host of milestones and has emerged as a strong and valuable segment in India’s manufacturing sector. It has seen the introduction of BS-VI emission norms, the adoption of electric vehicles and the penetration of CASE. The industry is now witnessing a vehicle scrappage policy, which is likely to usher in a significant change in the Indian automobile industry.
Union Transport Minister, Nitin Gadkari, on Friday, said that all government-owned vehicles that have completed 15 years will be scrapped from April 1, 2023. It includes vehicles in all forms like buses, trucks and cars. This policy will be adopted at the state level and has been sent to them.
Prime Minister Narendra Modi, in August 2021 launched the automotive scrappage policy also known as the Voluntary Vehicle Fleet Modernisation Programme, in order to address the menace of vehicular pollution. While announcing the policy, he said that it is expected to bring an investment of ₹ 10,000 crores.
The vehicle scrapping policy will affect the industry in the following ways:
India can become a manufacturing hub and attract investments
Apart from bringing in an investment of ₹ 10,000 crores, there can be a significant reduction in the prices of vehicles that are manufactured in the country. Buyers will have to shell out a lesser amount for buying newer vehicles and India can become a manufacturing hub.
Cleaner fleet of vehicles and boost to the EV sector
There are about 51 lakh vehicles that are more than 20 years old and another 34 lakh vehicles that are over 15 years old. These vehicles have a high chance of emitting toxic fumes and they pose a threat to road safety. After scrapping their vehicles, buyers might consider buying an electric vehicle (EV), which will boost the EV segment. Even if they opt to buy a petrol/diesel vehicle, it will have lesser emissions as compared to their old vehicle. Therefore the vehicle scrapping policy creates a space for a cleaner fleet of vehicles.
Reduction in cost of production
According to an IBEF report, the policy will increase the availability of scrapped materials like steel, plastic, rubber and aluminium. These can be used in manufacturing automobile parts, which will reduce costs by 30-40%. Further, the parts of the scrapped vehicles such as old tyres will be utilised in constructing roads. In addition, some components can be recycled.
Reduction in import cost
A huge amount of scrap material will become available. Recycling this material will lead to decreased import dependency on certain materials.
Arindam Guha, Partner, Government & Public Services Leader at Deloitte India said that the policy provides an opportunity for small and medium enterprises to set up vehicle testing centres for assessing the condition of old vehicles and issuing fitness certificates.
The government plans to establish 2-3 vehicle scrapping facilities in every district across the country. In addition, the government will assist private partners and state governments with setting up automated fitness tests and scrapping centres. The ministry expects that the scrappage policy will create around 3.70 crore jobs in the organized sector, once it is implemented.
An impetus to the auto industry
The policy will provide an impetus to the industry as there will be an obvious boost in demand for newer vehicles. As a result, auto manufacturers and auto component manufacturers too would employ more people.
Written by Simran Bafna
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