Union Budget 2021-22: Indian car manufacturers welcome new Scrappage Policy

Indian car manufacturers react to the new announcements made by the finance minister. Many automakers are welcoming the new move towards the introduction of the vehicle scrappage policy and expect it to help boost demand and thus growth.

By:Updated: Feb 01, 2021 6:46 PM
Budget 2021-22, Union Budget 2021

The Indian automotive industry has welcomed the new move by the Indian government with regards to the new vehicle scrappage policy. The pre-budget announcement made by the finance minister – Nirmala Sitharaman says that the new policy will allow for owners of older vehicles who scrap them and buy new vehicles will be incentivised. This will be a voluntary option for consumers, which is said to help boost the demand for new vehicles, thus helping the Indian auto industry grow. Additionally, this move is said to help reduce air pollution contributed by vehicular exhaust pollution. However, the increase in import duties announced and the revision of some exceptions has caught the auto industry by surprise. Here is how Indian carmakers reacted to the announcement.

Guenter Butschek, CEO & MD, Tata Motors

“Budget 2021 is a progressive statement of intent and action that aims to both stimulate and sustain growth following an unprecedented year. The significant increase in overall allocation towards capital expenditure has been complemented with comprehensive measures to catalyse multiple levers- focus on rural, infrastructure investment, impetus to manufacturing, social welfare, entrepreneurship and digital – to enable overall holistic development.

For the automobile sector, which is a significant contributor to India’s GDP, there are multiple welcome announcements including a voluntary vehicle scrapping policy to phase out old and unfit vehicles, augmenting public transport system in urban areas, continuing focus on adoption of cleaner fuels, and enhancing outlays for developing road infrastructure and expanding the Swachh Bharat Mission.”

Dr. Pawan Goenka, Managing Director & CEO, Mahindra & Mahindra.

“This is a Budget with the head and the heart at the right place. As the industry was looking forward to, this is a growth-oriented Budget, with significant focus on healthcare and infrastructure, two areas where everybody wanted to see a lot of focus.

I am glad that the scrappage policy has been acknowledged in the Budget and expecting the policy to be announced very soon. Though details are not yet out, when the policy comes out, it should have full incentive for scrapping and not just disincentivize for not scrapping.  If I look at the tractor industry there is a lot of incentive on the agri economy and other agri businesses.

Everyone is relieved that there is no Covid cess that has come in or any extra taxation, which is a good thing. We have also seen some bold moves in terms of Bad bank or ARC which were hoping. There is nothing much specific in terms of sectorial intervention, but that is fine since the Budget is focusing on overall growth and increasing denominator which should otherwise help all the sectors. Overall the Finance Minister has delivered a promised Budget that will go a long way and not just for 1 year.”

Martin Schwenk, Managing Director and CEO, Mercedes-Benz India

“We welcome the policy stability that the budget provides to the industry by no new announcement of direct taxes, though we would have liked some reduction in compensation cess. It’s good to see some positive movement through the scrappage policy and we also expect the capital expenditures to indirectly help the industry. The decision to spend more on infrastructure despite of the high fiscal deficit, will boost the overall economic revival and we should see positive impact on the PV market. However, the increase in the rise in auto component duties is unexpected in such revival period, and it will increase the production cost, leading to higher cost for consumers. There could have been further push towards e-mobility by lowering import duties on EV.”

Venkatram Mamillapalle, Country CEO & Managing Director, Renault India Operations. 

“The government has shown keen focus on Atmanirbhar Bharat and its support for the manufacturing sector, especially in Technology Innovation in the Automotive Sector. The budget lays a lot of emphasis on building core competencies and creating Global Champions in the manufacturing sector, creating world-class R&D, value chain providing scale and size in terms of growth, providing employment to youth in the country and the government has allocated INR 1.97 Lakh Crore over the next five years for the PLI scheme, creating fillip for economic growth. We also welcome the government’s announcement pertaining to the scrappage policy, made voluntary, for vehicle age of 15 years for Commercial Vehicles and 20 years for personal vehicle. This move will significantly reduce pollution and should help bolster demand for new vehicles in the CV & PV sectors.

The union budget also lays the foundations for augmenting the road infrastructure in the country, under the auspices of which, over 13,000 km length of roads at a cost of INR 3.3 Lakh Crore has already been awarded under Bharat Mala project. By March 2022, 8500 Kms of road, highway projects to be awarded and an additional 11,000 km of NH corridor will be slated for completion. The Indian economy is showing signs of resilience & recovery, intending to revive from the aftershock of the COVID pandemic. With the government announcing INR 35,000 Crore for COVID 19 vaccines, we are hopeful that India will bounce back and the workforce will return with new vigor and focus to contribute in bringing the economy back on track.”

Vikram Kirloskar, Vice Chairman, Toyota Kirloskar Motor

“Faced with the challenge of delivering rapid, inclusive, economic growth with heightened focus on health and welfare in an environment of economic contraction and sharp increase in fiscal deficit due to COVID, the Hon’ble Finance Minister has struck an remarkable balance between growth and fiscal prudence by setting pragmatic revised targets and glide path for fiscal consolidation. The emphasis on capital expenditure and infrastructure creation is sought to be largely realized through borrowing and asset monetization without resorting to any significant increase in taxation. The privatization of banks, the higher ceiling on foreign direct investment in the insurance sector, zero-coupon bonds for infrastructure, tackling the bank non-performing assets through a combination of an asset reconstruction company and an asset management company are all ideas that will stimulate growth. The budget makes a bold statement for a growth rate beyond Pre-COVID levels and renews government’s commitment to minimum government and maximum governance

From an auto industry perspective, the long-awaited voluntary Scrapping Policy can help take older vehicles off the roads thus contributing to lower fuel consumption, pollution as also generating additional demand for cleaner new vehicles. The auto sector welcomes this announcement and is hopeful that for realizing full benefits there will be an early and full implementation of this policy. Further, at Toyota Kirloskar Motor, we have continuously worked towards creating a self-reliant and competitive local manufacturing eco-system and are eagerly looking forward to the details of the Production Linked Incentive scheme that can potentially make India a part of the global supply chain for both traditional and advanced automotive technologies.”

Ashish Gupta, Brand Director, Volkswagen Passenger Cars

“The Budget 2021 as announced by the Hon’ble Finance Minister has potential to revive the economy at large. The focus on the six pillars, with greater impetus on healthcare, infrastructural & connectivity development and rural economy will have a positive impact on the businesses. With respect to the auto sector, increase in custom duty on certain auto parts would impact the input cost, although we’re yet to assess the financial impact. On the voluntary scrappage policy, strict governance on the fitness test would determine the benefit on the environment and pollution reduction.”

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