Union Budget 2021: Auto industry welcomes scrappage scheme, decries new duties on imported parts

Union Budget 2021 did not offer much to the automotive sector but industry stakeholders were content that there were no nasty surprises, which in budgets past had troubled them.

Finance Minister Nirmala Sitharaman announced the commencement of the long-pending scrappage scheme for obsolete vehicles. Owners will be incentivised to scrap such vehicles if they are over 20 years old in the case of passenger vehicles and 15 years in the case of commercial vehicles.

Kenichi Ayukawa, President, Society of Indian Automobile Manufacturers (SIAM), said: “The vehicle scrappage scheme has a good intent and the auto industry will be keen to work with the government on suggestions for maximising benefits to environment and society”.

Although the government has not provided any approximation of the number of vehicles that stand to benefit from the scheme, Street estimates indicate there could be 3.7 million commercial vehicles and 5.2 million passenger vehicles eligible.

Sitharaman said that further notification on the scheme will be shared by the ministry concerned.

Industry reactions

Venkatram Mamillapalle, Country CEO & Managing Director, Renault India Operations, said: “We 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 vehicles. This move will significantly reduce pollution and should help bolster demand for new vehicles in the CV and PV sectors.”

The average replacement cycle of a passenger cycle in India is around eight years while that of a CV is around 8-10 years. Instances of owners sticking to their vehicles for 15 years or 20 years is rare and therefore it is feared that there won’t be too many vehicles lining up for the scheme. But stakeholders welcome the idea of upgradation to cleaner and more efficient vehicles as replacement.

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Vikram Kirloskar, Vice Chairman, Toyota Kirloskar Motor, said: “The long-awaited voluntary scrapping policy can help take older vehicles off the roads thus contributing to lower fuel consumption and pollution as also generating additional demand for cleaner new vehicles”.

Duty discontent

While the scrappage incentive scheme pleased the automakers, a hike in duty on certain imported parts left them discontented. Imported parts such as electrical lighting, windscreen wipers, instrument panel clocks, ignition wiring sets, safety glass and parts of signalling equipment will become expensive.

Gurpratap Boparai, Managing Director, ŠKODA AUTO Volkswagen India, said: “It is important to keep in mind that even in the coming financial year, the passenger vehicle market is unlikely to reach the level of 2018 and the much-required rationalisation of GST and cess to aid the auto industry was missing. Additionally, the increase in customs duty on certain auto parts to 15 percent will further increase input costs and prices for cars that depend on specialised components which cannot be manufactured locally due to unviable volumes.”

Sitharaman also did not pay heed to the auto sector’s demand for postponement of next-generation emission norms, set to kick in from 2022. SIAM officially appealed to the government to keep the new norms on hold for 12-18 months so that it could at least recoup the investments on BS-VI first.