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Auto Scrappage Policy in India: Will market dynamics change soon?

The changes in the auto scrappage policy in India promise to reduce the carbon footprint sizably

It has been a rocky ride along the ruts for the imminent Auto Scrappage Policy that has been in the making for the past few years. The shrinking of the last quarter GDP by 23.9 per cent and the burping of..sales in the automobile sector during COVID climes has prompted a quick rejig with the policy, with its clearly delineated nature and scope, now set to unveil by October or sooner, according to Nitin Gadkari, Union Minister of Micro Small and Medium Enterprises, and Road Transport and Highways. A big challenge.

The much needed changes in the auto scrappage policy could make the pollution levels decrease radically

The decoder

The Auto Scrappage Policy is expected to oust polluting vehicles that are 15 years old from the roads – a move that would cover both private and commercial vehicles, including two wheelers and three wheelers. The policy is scheduled to emerge as a pivotal growth driver, while reducing import dependency by recycling scrap for metals like steel, copper and aluminium. A new market, with newer players, and even more new employment opportunities yet with truckloads of issues to deal with: Consumer incentives need to be shaped up as palatable for all players including cost economics for the truck owners in rural areas to maximise on the nature and scope of the policy. With margins per vehicle ranging from 3-9 per cent across segments, the auto industry has been unwilling to offer more than 1 percent incentive on scrappage, having borne most of the price hike for Bharat Stage-VI emission standards for all vehicles pan-India. While the policy is highly awaited, the moot point is:Who is going to bear the cost of compensation? A similar Cash for Clunkers move in the US during the 2008-09 slump brought over 70,000 vehicles to the junkyard with a burden of US$ 3 billion on the taxpayer, according to a report by Fox News.

The way forward

Says Veejay Nakra, CEO-Automotive Division, Mahindra & Mahindra, “As the Scrappage Policy was under discussion with several stakeholders, aligning and working out a win-win formula has been a challenging task. There are multiple segments including personal and commercial vehicle segments with varied cost of ownership structures. The Indian auto industry has submitted its views to the government on arriving at a formula of what should be the value of benefit to the customer at the time of scrappage. This should be calculated as a percentage of ex-showroom prices to be contributed jointly betwee..

between the government and OE. The incremental sales of new vehicles will have a positive impact on the entire value chain and is likely to increase employment opportunities in the allied industries.” The market dynamics have witnessed a radical change with low freight availability, making plying trucks a relatively unviable business. It will be a tough call, especially for financially challenged truck owners to buy a relatively younger truck, using their trader certificate they obtained on relinquishing their existing truck to the junkyard. Whether banks will tend further loans to facilitate this purchase is another challenge. More so, are we equipped on domestic turf to deal with the technicalities of recycling the scrap and re-engaging for low tech components in vehicle machinery? The development of recycling clusters forms an important part of the growth driver that is expected to wheel out over 28 million vehicles from the roads into scrappage. This would open up business opportunities to the tune of US$ 6 billion, according to a study conducted by HDFC Bank. “Mahindra Accelo (previously known as ‘Mahindra Intertrade’) and MSTC (a Government of India Enterprise) have joined hands ..

Shilpi Madan for Construction World

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