Get rid of your old car and get a new one for less: the Government’s scrappage policy finally takes off!

The Union government’s scrappage policy, designed to phase out older vehicles in favour of cleaner, safer and more efficient alternatives, has struggled to gain traction. State-level delays and a lukewarm response from automakers regarding rebates have been major hurdles.

However, a recent announcement by Union Road Transport Minister Nitin Gadkari on social media platform X has injected new energy into the initiative. Gadkari revealed that several passenger and commercial vehicle manufacturers have pledged to offer discounts for scrapping old vehicles with a valid certificate of deposit. This move is seen as a crucial step towards accelerating the adoption of the scrappage policy across India.

Vijay Chhibber, former Road Transport Secretary, expressed satisfaction that the Indian automotive industry is finally embracing this concept, which he believes is crucial for the long-term sustainability of the sector.

Chhibber stressed that the success of the scrappage policy depends on a joint effort between the government and the industry. He said the recent offer by carmakers to offer discounts for scrapped vehicles is a positive step that could encourage more consumers to opt for new vehicles, which would benefit the industry in the long run.

Manish Raj Singhania, president of the Federation of Automobile Dealers Associations (FADA), echoed the sentiment that the scrappage policy was much needed in India.

As FADA president, Singhania said the association has been proactive in facilitating the establishment of Registered Vehicle Scrapping Facilities (RVSF) across the country. With 114 RVSF facilities licensed and 56 already operational, he stressed the importance of having the necessary infrastructure in place for the policy to be successful.

However, he noted that the missing piece in the puzzle was the Original Equipment Manufacturers (OEM) incentive, which has now been addressed following Gadkari’s announcement.

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Meanwhile, Vinod Aggarwal, president of the Society of Indian Automobile Manufacturers (SIAM), acknowledged that while the policy has been in place for some years, its impact has been minimal due to lack of customer-friendly measures.

To address this situation, the sector has agreed to offer additional discounts linked to the scrapping of old vehicles. In the case of commercial vehicles, discounts of up to 3% will be offered for vehicles weighing more than 3.5 tonnes and 1.5% for those weighing less than that threshold. In the passenger vehicle segment, most manufacturers have joined the initiative to offer a 1.5% discount.

“I think the scrappage policy has been in place for the last few years, but we haven’t seen much impact at the grassroots level. So, there have been a lot of discussions with the Indian government on how the industry can help make this scrappage policy more customer-friendly. So, I think the industry has come forward and we have agreed to offer an additional discount which will be linked to the scrapping of an old vehicle. For example, for commercial vehicles, we have agreed to give an additional 3% discount for vehicles of 3.5 tonnes and above. And for vehicles of less than 3.5 tonnes, the discount will be 1.5%. And for passenger cars, most of the manufacturers have come on board. I think 11-12 car manufacturers have agreed to give this discount. And in that case, the discount is 1.5%. So that is the agreement that has been reached with the Indian government,” Aggarwal said in an interview with CNBC-TV18.

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Aggarwal also confirmed that these discounts are in addition to existing offers and are designed to boost incremental sales. The discounts will be available for one year in the passenger vehicle segment and two years for commercial vehicles, with the possibility of extension depending on the success of the policy.

Below are the edited excerpts:

Q: Will this measure encourage vehicle scrapping in the country in the long term?

Gossip: Vehicle scrapping is not a new phenomenon globally. Vehicle scrapping has been around for the last 70-80 years in other geographies. Obviously, there was a missing link in this illusion that we should have a similar arrangement here. And while the government can go some way, I think it is the responsibility of the industry and the auto industry in India is a booming sector, it has to think like a long-term player. And I am very happy to know that they have finally changed their mind and come up with some kind of offer.

The scrapping sector, if you can call it that, has to become a self-sustaining and sustainable sector. And unless there is a middle ground between both the government and the industry, it will not take off. I am very happy to hear that the industry has changed its mind. And although this offer is on the table, I think they will soon realise that this is something that will encourage more and more people to buy new vehicles and therefore is beneficial for the industry in the long run.

Q: Will this help customers, car manufacturers and the environment in the long term? Currently, for passenger cars, this applies for one year and for commercial vehicles for two years. Is this really a measure to reduce inventory in the system and perhaps to stimulate consumer demand and confidence?

Singhania: I think the industry needed it very much. It was already on the radar and a lot of discussions have happened regarding it. In fact, as an association, we have had several programmes for dealers across India to enable them to set up Registered Vehicle Scrapping Facilities (RVSF). Nearly 114 RVSF facilities have been approved and out of them, nearly 56 are operational now. So, the infrastructure is also needed to make this scrapping policy a complete success. Customers need to have a place where they can get their certificate and I think these certificates are now on the platform set up by the government where they can also be traded. So the entire backward and forward integration has already happened.

The only missing link in all this was the incentive that was supposed to be given by the OEM, which was expected to be around 4% to 5% of the vehicle value. And now, with Nitin Gadkari stating that OEMs are willing to offer this kind of incentive to allow the installation of vehicle belts, that will be a big boost for the industry.

Q: What type of discount will be available to a customer in the passenger vehicle segment and commercial vehicle segment?

Agarwal: I think the scrappage policy has been in place for the last few years, however, we have not seen much impact at the grassroots level. There have been a lot of discussions with the Indian government on how the industry can help make this scrappage policy more customer-friendly. Based on that, I think the industry has come forward and we have agreed to offer an additional discount which will be linked to the scrapping of an old vehicle. For commercial vehicles, we have agreed to give an additional 3% discount for vehicles of 3.5 tonnes and above. And for vehicles of less than 3.5 tonnes, the discount will be 1.5%. And for passenger cars, most of the manufacturers have come on board. I think 11 or 12 car manufacturers have agreed to give this discount. And in that case the discount is 1.5%. That is the agreement that has been reached with the Indian government.

Q: Will it be for a period of one year for passenger cars and two years for commercial vehicles?

Agarwal: Yes, for passenger cars it is one year and commercial vehicle manufacturers have agreed on two years, but of course this is the initial period, depending on how everything develops, how it happens, and then of course the next step will be decided.

Q: Is this in addition to the current discounts prevailing on cars?

Agarwal: This will be the discount linked to the scrapping. Therefore, if you scrap the vehicle and you have the scrapping certificate, based on this, this will be the additional discount.

Q: Is there any additional discount that will be given on the car or commercial vehicle?

Agarwal: Yes, there will be an additional charge for scrapping. The logic behind this is that this should generate incremental sales.

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