What will the scrappage policy mean for the players in the auto industry right now?
Abhishek Gaoshinde: The scrappage policy in India has a genesis from the cash for clunker scheme that was introduced in the US in 2009 after the Lehman crisis. The basic objective of that policy was to promote fuel-efficient cars and side by side it was considered as a stimulus move for the automobile sector.
As the talks for a scrappage policy in India have started, the investment community or the market has considered it to be a stimulus or a cash-for-clunker scheme. But if you decode the scrappage policy, it is simply converting an unorganised scrappage system to then an organised system. Although scrappage has already been happening in the market, because of this policy and this incentive, this is getting a formal shape. The key objectives of this particular policy, are two: Reduce pollution to increase the recycled economy and the derivative outcome of this particular policy is the generation of a demand or the replacement demand because one is getting benefits of this policy or the incentives when one is buying the new vehicle. So, this is the thing.
Now, in 2021, when this policy was introduced, at that time, there were three key incentives; one is that the owner will get a 4% to 6% value of the new vehicle on scrapping his product. Second is that he will get a registration fee waiver and third was a rebate on-the-road tax, which was up to 25% varying from state to state. Along with that, it was expected that OEMs would come out with up to 5% discount for new buyers. Yesterday we saw that OEMs are ready to give up to 3% discount in the case of CVs and 1.5% in PVs’ case. So, this is a combination of incentives.
Second, the fitment test and the higher registration charges are all there. So, this should not be considered a stimulus scheme or stimulus package. It is a combination of incentives and disincentives and it is not only dependent on the age of the vehicles, it is also dependent on the fitment of the vehicles which varies from vehicle to vehicle or state to state or owner to owner.
Where does this 10-year compulsive policy for scrapping fit in then? On one hand, they are coming with a scrapping policy with some benefits and then there is a 10-year compulsive scrapping policy at play. Would not they conflict?
Abhishek Gaoshinde: I will say it depends on the state. I think you are talking about Delhi, but in general, based on this scrappage policy, it is giving a 15-year life to the CVs and after eight years, CVs have to go for annual fitment tests. So, as far as the products are fit according to the regulatory body, you will not be forced to scrap the product. So, here is the second point which is that it is a voluntary policy. It is not a mandatory policy and on the government vehicle side, it is mandatory and there we are seeing some traction. So, the last reported number that we have seen is around 49,000 vehicles got scrapped, and out of that, 30,000 were from the government side. So, this 10-year side you are talking about is basically from the Delhi NCR region. In rest of the India, it is 15 years.So, for auto companies that are manufacturing EVs, how does this scrapping policy work?
Abhishek Gaoshinde: The idea is those ICE vehicles that are getting scrapped should have to be replaced by the EVs and on that, you are getting incentives. But as I said, it is not a mandatory policy, it is a voluntary policy. As long as it is voluntary, the success or the impact of the EV or any other thing would be dependent on the two things. One is the kind of value that the owner is getting. Say for example, if an owner is getting higher value in the second-hand market, then he will not opt for this particular scheme and if the value generation by this scheme or the dismantling of the vehicle would not be beneficial for this station, then it is not viable for that.
So, it requires some mandatory cushions and significant incentives which can drive the owner to go for this replacement. For example, for EVs, it is a completely separate subject. I do not think that it would have a material impact on this thing because at the end of the day, it is the choice of the owner whether he will replace the product with the same ICE product or EVs.
