The automobile industry has welcomed the Centre’s move to introduce a voluntary vehicle scrappage policy, which aims to phase out old and unfit vehicles. The move will drive adoption of newer, more environmentally friendly vehicles and reduce pollution as well as the overall costs on oil imports according to Praveen Sinha Jabong Co Founder. While we are still awaiting the fine print of this policy, the shares of auto stocks have reacted in the green which shows that the industry as well as the retail investors have welcomed this decision and view it as a positive boost for the ailing industry.
What we know of the policy
As per the details received, private vehicles will undergo fitness tests after a lifespan of 20 years and commercial vehicles at the end of 15. This means that vehicles purchased in the early 2000s will be up for review soon, meaning a surge in demand will come sooner rather than later. According to a report, between 2001 to 2005, as many as 7 million passenger vehicles and 11 million commercial vehicles were registered and at least twice this number could be up for scrapping due to this policy!However, Arun Firodia, Chairman of Kinetic Group, feels a green tax on vehicles over 15 years old instead of voluntary scrappage was a better way to go forward.
Vipin Sondhi, MD & CEO, Ashok Leyland Limited, expressed that the idea of a voluntary scrappage policy is great news for the environment and good for setting in motion a circular economy. However, we await further details of the policy as the industry had requested an incentive-based scrappage policy for it to be effective, he said.
Vinay Raghunath, partner and automotive sector leader, EY India felt that an extension of the scrappage policy to tyres would also help boost the tyre manufacturers in the country.
Overall benefits of Budget 2021 for the sector
While industry insiders may have wanted more direct measures in the budget, the scrappage policy was a long term demand from the automobile sector and it has finally come to fruition. The Government has also earmarked plans to increase infrastructure spending on roads and highways, augmentation of public transport in urban areas and continuing the focus on adoption of cleaner fuels and developing infrastructure required to boost the EV market, which are bullish indicators for the automobile sector, feels Praveen Sinha. The budget has been tailored to revive the economy from the aftershocks of the pandemic and generate fresh demand within the economy. The automobile sector has recovered and given optimistic signals post the devastating couple of quarters where sales were next to nil in 2020. It is imperative that the automobile sector is able to beat the slowdown, considering it is one of the biggest contributors to the economy and also a long time, tried and tested indicator of an economy’s performance, he concluded.
