Drive in right direction: Auto industry reacts to Budget 2021

The biggest takeaway for the Indian automotive industry from Budget 2021 presented by Finance Minister Nirmala Sitharaman on Monday was the announcement of the much-awaited vehicle scrappage policy. And while the details of the policy will remain to be seen, the auto sector seems to have had more reasons to smile than frown at the end of the day.

Vehicle scrappage policy has been a long time coming and brings with it the promise of lesser vehicular emissions and a possible boost in demand. “We are separately announcing a voluntary vehicle scrapping policy to phase out old and unfit vehicles. This will help encourage fuel-efficient and environment-friendly vehicles, thereby reducing vehicular pollution and oil import bills," Sitharaman said in Parliament. "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."

Car makers, in particular, are seeing this is a drive in the right direction. "Increased outlays in the road sector, infrastructure development and introduction of the voluntary vehicle scrappage policy will not only create a safer and environment-friendly auto sector but also drive replacement demand in the sector," said Gurpratap Boparai, Managing Director at Skoda Auto Volkswagen India.

Tata Motors' Guenter Butschek also echoed similar thoughts. "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," said the company's CEO and MD.

Renault also expects a boost in sales courtesy the policy. "This move will significantly reduce pollution and should help bolster demand for new vehicles in the CV (commercial vehicle) and PV (passenger vehicle) sectors," said Venkatram Mamillapalle, Country CEO and Managing Director, Renault India Operations.

Volkswagen Passenger Cars' Brand Director Ashish Gupta chose to focus on the governance part of the policy. "On the voluntary scrappage policy, strict governance on the fitness test would determine the benefit on the environment and pollution reduction," he said.

Toyota Kirloskar Motors' Vice Chairman Vikram Kirloskar has welcomed the policy in no uncertain terms. "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," he said. "The auto sector welcomes this announcement (scrappage policy) and is hopeful that for realizing full benefits there will be an early and full implementation of this policy."

The scrappage policy could also be a shot in the arm for the EV sector in the country. "If a person exchanges their old conventionally powered vehicle with a new EV, an additional scrapping incentive will also be given as per this policy," said Shreyas Shibulal, Founder and Director at Micelio. "We believe that the policy will not only help in reducing vehicular pollution and cut oil import bill but also will help in boosting EV adoption in the country."

Sohinder Gill, Director General, Society of Manufacturers of Electric Vehicles (SMEV), also believes in the possibility of EVs finding more takers after scrappage policy is implemented. "We thank the Hon’ble Finance Minister for announcing the scrappage policy, which would help in encouraging the adoption of greener vehicles. Though we are awaiting more details on the policy but hope that it would be designed in such a way that would automatically push the adoption of electric vehicles," he said.

Mercedes, which became the first player in the luxury segment to drive in an EV last year, applauded most of the announcements made but felt the need to highlight the need for making such vehicles affordable. "There could have been further push towards e-mobility by lowering import duties on EV," said Martin Schwenk, MD and CEO at Mercedes-Benz India, while adding that no new announcement of direct taxes is good news. "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 scrappage policy could also specifically help put out ageing tractors and other farm vehicles, something that would be of interest for Mahindra. "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," said Pawan Goenka, MD and CEO at Mahindra & Mahindra. "If I look at the tractor industry there is a lot of incentive on the agri economy and other agri businesses."