India vehicle scrappage policy: How some clarity from government could help carmakers

The vehicle scrappage policy proposed by the government does indeed come with its terms and conditions. While we aren't privy to these yet, the suggestions in this story will definitely help understand what is coming our way.

By:Updated: Apr 05, 2021 4:40 PM

The Indian vehicle scrappage policy is very much going to be implemented in a few months from now. Okay, if things go well, like no lockdowns or anything, then from October it will be implemented. While the details of this are awaited and as to how it will affect us as end customers, we have formulated a few pointers on how the government could assuage our thoughts and help carmakers in the process as well. For this, we spoke with a few leading audit firms like Deloitte as well as Shardul Amarchand Mangaldas on what they think about this entire scrappage policy and its benefits. This, we believe, might help you to conjure an understanding on how the scrappage policy will work. This is until the government comes up with a proper protocol for the same.

Also Read Benefits, discount of vehicle scrappage policy explained

The choice to scrap

First, talking to Rajeev Singh, partner and automotive leader, Deloitte India, we came to know that this is a voluntary method and not mandatory for every vehicle owner. So, you as a customer have the choice. While in some countries like Japan, it is mandatory for customers to scrap their vehicles, let’s say after 10 years of usage, in India it might not be the case. This way, wherein the 15-year registration ends, owners can re-register their cars or bikes in India (most parts of the country at least). The scrappage policy might not interfere with this. So the vintage cars/bikes or those looking to keep them for as long as their health (personal as well as of the vehicle) permits.

The choice of incentives

Now, there is also a choice with respect to the incentives being given. For example, on the roadtax the central government wants the state RTOs to give up to 25 per cent waiver based on the `scrappage certificate that a customer produces. Now, this seems quite a good one, however, the limitations immediately set in. The state governments need not necessarily have to adhere to this upper limit of 25 per cent. It is only a suggestion by the Centre. They (state governments) can very well give only a five per cent discount. At the same time, if a state that is dealing with a higher level of pollution and still gives just a 15 per cent discount, the other states will definitely be forced into giving lesser. It is after all a loss of revenue to the state government and trust me, no one likes money going out of their pockets.

Moreover, even if a state has a higher pollution level and they blame it squarely on vehicles with older technology, the government still is no position to stop commercial vehicles from coming in. These commercial vehicles may be registered in a state which provides much lower incentives on scrapping. Perhaps providing a blanket discount rate for the nation will quite help the cause of auto as well as the policymakers. Rudra Pandey, Partner, General Corporate at Shardul Amarchand Mangaldas & co. says

While the draft policy is in line with the vehicle scrapping policies in Germany and United States, there is uncertainty lurking around its enforcement in India given that it may lead to loss of revenue coming from road taxes and the incentives recommended under the policy may outweigh the costs. Effective implementation of this policy is key to its success and may give India the much-needed impetus in being the top automobile manufacturing hub across the globe.

OEMs too have been asked to give an additional five per cent off to customers. It is unclear, as Rajeev reasons, that in these trying times where is the OEM supposed to dole out an additional discount to a customer on a new car. At present, dealerships are resorting to heavy discounts to move vehicle stocks off the showroom floors. This in turn, affects their margins. If the government gives credit on the GST in this regard, then this will be favourable for OEMs to give out five per cent discounts to customers who come with a scrappage certificate.

More scrappage yards in the offing

While earlier, the best you can do is go and give your vehicle for some local guy to be scrapped and receive a phoney certificate for the same, in the future that might not be the case. With this policy, there will be a rush for setting up new authorised scrapping centres in tier I and II states. Rajeev quips in by saying

Today, most of the scrappage that happens in the country is in an unorganised sector. And since the realisation that the customer is able to get Rs 12-15 per kg, so if I take my vehicle and scrap it, I don't get more than 12 to 15 rupees per kg on the weight of my car. If the car is 1,000kg, then I'll get some 12,000 to 15,000 bucks for that because that's all the scrappage fellow may be willing to give. But if I have scientific methods of doing scrappage, then I will be able to get the alloys (material) in a scientific manner, and all this can go back into my own raw materials bin. I can ensure that my raw material cost hence goes down. So, I think there will be a set of new organised scrappage yards that are likely to come up in the country. And these scrappage yards will be able to not only help in reducing the raw material costs for the OEMs, but they'll also be able to increase the valuation from a customer perspective, maybe these scientific scrap yards could increase the valuation from Rs 12-15/kg today, to Rs 18-20 per kg tomorrow.

Authentic spare parts in the market

Before a vehicle is scrapped, markets like Japan and Europe usually separate the usable spare parts. These are then packaged and sold. In India, we can adopt this. While the tier I customer might refuse these spares, those coming from tier III and IV might be happy taking a genuine spare at a lower value. If a 2000 Honda City is scrapped, there are many parts that a vintage customer can salvage from it and for these people, it is a boon.

Lesser abandoned vehicles on the road

Day in and out, we see cars abandoned on the roads. It is expected that the numbers will go down once the scrappage policy comes into place. This is because people abandon a car on the road when they no longer find the spares to keep it running, or it is proving to be a lemon. There is also a slightly smaller percentage who will discard a car because it doesn’t have any valid papers and hence is unfit for the road. With the scrappage policy firmly entrenched, customers will happily scrap these cars and make money out of it. If a customer wants to buy a new car, he can simply go to the dealership with the certificate and get a rebate on the same as well. A total win-win situation.

More registration numbers in the pool

You scrap your vehicle and obtain a certificate now. That’s no the end of it. Your vehicle registration number stays active till the time you actually go to the RTO and get it deregistered. This is a process not many know of and hence can be a bit of trouble. With the advent of new authorised scrappage centres, it could be a central process. Rajeev echoes this sentiment and says that

Let's say the consumer would like to see it as a one window and my belief is that some of the new scrap yards that will be coming up will offer that as an end to end service to the customer. They will say that you come at my scrapyard and we will take care of the process with the RTO, we will do the de-registration at the RTO and give you the certificate that your vehicle has been de-registered. So, I think that is what is likely to happen with the new scrapyards coming in who will offer it as a single-window from a consumer’s perspective so that the customer doesn't have to go to two-three different places. He just goes to the scrapyard and the scrapyard guy takes care of the entire process

These are all the pointers we believe the government will throw light upon in the coming days. If you have any additional points or suggestions, do let us know.

 

 

 

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