Finance Minister Nirmala Sitharaman, in the Union Budget presented on Monday, introduced a voluntary vehicle scrappage policy. Under the vehicle scrappage scheme, commercial vehicles that are 15 years or older and personal vehicles more than 20 years old “can be” scrapped. The policy is expected to give a major fillip to the auto-sector as pollution and traffic would be reduced, thereby helping conserve the fossil fuels and eventually help the economy.
“We are separately announcing a voluntary vehicle scrapping policy to phase out old and unfit vehicles. This will help in encouraging fuel-efficient, environment-friendly vehicles thereby reducing vehicular pollution and oil import bill. Vehicles would undergo fitness tests in automated fitness centres after 20 years in case of personal vehicles and after 15 years in case of commercial vehicles.Details will be shared separately,” said Nirmala Sitharaman.
The auto industry which had been hit hard by the COVID-19 pandemic and has been making encouraging progress since then, thanks to the government’s efficient handling of the pandemic, seemed visibly elated by the announcement.
The market was buoyed by yesterday’s budget and so were the auto manufacturers and their stocks. Mahindra and Mahindra, Maruti Suzuki, and Tata Motors were some of the major players that gained significantly on the stock market after the scrappage policy was announced by the FM.
“The government has adopted an expansionary stance with a thrust on infrastructure building with measures for efficiency improvement and increasing competitiveness. Good macroeconomic growth will translate to good auto sector demand. Specifically, the vehicle scrappage scheme has a good intent and the auto industry would be keen to work with the government on suggestions for maximising benefits to environment and society,” said Kenichi Ayukawa, president, Society of Indian Automobile Manufacturers (SIAM).
The policy is expected to augment public transport system in rural as well as urban areas, help the government and the public adopt cleaner fuels; enhance outlays for developing road infrastructure and expand the Swachh Bharat Mission.
There are an estimated 6 million vehicles on Indian roads that are more than 15 years old and are in need of an urgent replacement. Government data suggests these vehicles are the prime contributors to vehicular pollution and according to an HDFC Bank report, an estimated 9 million vehicles will fall under this category by FY21 and 28 million by FY25.
Furthermore, the government also announced that it will be spending Rs. 18,000 crore to improve public transport in cities and procure 20,000 buses in the coming years. This will give an impetus to the bus segment, where sales have crashed, and simultaneously help tackle the pollution issue.
Domain experts have predicted that although the scrappage policy is voluntary at the moment as announced by the FM but there should be no doubt that it will become mandatory going forward. Nirmala Sitharaman has played boldly on the front foot in this year’s budget and it seems like a certainty that the auto-industry will be up and running at full strength in no time. The reforms were desperately needed and FM delivered it in style.