Auto scrappage incentive scheme: Stakeholders look at it with optimism and doubt

One of the many questions is over the actual number of vehicles eligible for scrapping, in the absence of any official data.

Gurpratap Boparai, managing director, Skoda Auto Volkswagen India, said: “There are two aspects. One, I feel the number of old vehicles is overestimated. I think most of them are already scrapped but not de-registered. Secondly, anyone who has a 20-year-old car and who has been holding onto it for sentimental value or they can’t afford a new car. I don’t think what has been offered in the scrappage scheme will find too many takers. If you look at successful scrappage schemes in Europe, they offer much more.”

In Germany, for instance, an owner of a nine-year-old car was entitled for a grant of 2,500 euros (more than Rs 200,000) when buying a new car. France gave up to 5,000 euros for a 10-year-old car.

As per government estimates, there are nearly 3.4 million light motor vehicles that are older than 15 years, and 5.1 million motor vehicles older than 20 years. The average age of vehicles at the time of their replacement in India is not more than 10 years. Used car buyers also don’t hold on to vehicles older than 15 years for obvious reasons, like high maintenance costs and reduced efficiency.

Discount advisory

Further, the government has merely issued an advisory to automotive companies to give a discount of 4-6 percent on the ex-showroom price of the vehicle against a scrappage certificate.

For a car that costs Rs 650,000 (ex-showroom), it would translate to Rs 26,000-39,000 discount, which is a direct hit on the margin. So far, no details have been announced if the amount will be reimbursed by the government.

A Tata Motors spokesperson said: “We are optimistic and look forward to seeing how various provisions of this policy encourage consumers to voluntarily come forward and scrap their old and unfit vehicles. We will await the actual release of the policy to go through the fine print and the nuances, in order to understand its impact on the industry.”

Preetam Mohan Singh, Sr. Vice President, Automotive, Praxis Global Alliance, said: “A lot has already been said about the efficacy of scrappage policy and how it can provide the much-needed impetus to auto sales. However, one needs to see the fine print of the policy as the devil lies in the details. A five percent rebate on new car purchases is indeed welcome but the key lies in framing the right rules and putting standard operating procedures for testing, payments, and grievance redressal. How the provisions of green taxes will be implemented and monitored, and how new testing centres will be set up under the PPP mode are important issues as the success of the programme is directly linked to the execution of the policy.”