Lack of incentive could create headwinds for vehicle scrappage policy: Jefferies

The insufficient incentives in the vehicle scrappage policy, proposed in the Parliament last week, is unlikely to encourage people to junk their old vehicles and buy new ones, claims financial services firm Jefferies. In a report, the firm has said that the government is offering insufficient incentives, which would create headwinds for the success of the much-discussed vehicle scrappage policy.

Under the proposed vehicle scrappage policy, the government is supposed to offer a monetary value close to 4-6% of the scrapped showroom value. Also, there could be a discount of up to 5% on the purchase of a new vehicle in a scrap certificate is produced during the purchase of a new vehicle. Apart from that, there would be a 25% discount on road tax for the new model after scrapping the old one. The vehicle scrappage policy also proposes to de-register the vehicles that fail fitness tests or unable to renew registrations after 15-20 years of use.

Pointing to the scrappage policy the study says that the intent behind the implementation of this policy is right, but the incentives are insufficient to trigger major replacement in the existing vehicle fleet. According to the study, vehicle owners can get around 2-3% scrap value of the vehicle price in the market. Hence, the incremental incentive amount from the vehicle scrappage policy is very minimal, which is less attractive to the vehicle owners.

The study further says that the auto manufacturers are unlikely to offer additional discounts to the new vehicle buyers, considering the fact that the demand for new vehicles is already recovering from the all-time low of April 2020. Apart from that, the automakers are also facing huge margin pressure due to the increased raw material prices.

According to the central government, around 1.7 million medium and heavy commercial vehicles are older than 15 years and around 5.1 million light motor vehicles plying on Indian roads are older than 20 years. Under the scrappage policy, if these vehicles are scrapped, the vehicular pollution level would come down drastically. Besides that, the scrappage policy also claims to be reducing the vehicle price by decreasing the production cost of the OEMs.