Long overdue vehicle scrappage policy milestone step for Indian auto industry

The average operational life of a passenger vehicle in India stands at more than 25 years. According to GlobalData’s Automotive Intelligence Center, there are nearly 5.2 million passenger vehicles on road aged over 13 years in India, as of 2020. In the past few years, India’s auto industry has been witnessing subdued sales volumes and production declines stemming from both the macroeconomic and COVID-19 related issues. The reduction of the general sales tax (GST) on vehicles and the vehicle scrappage policy were the two main demands of the auto industry. Achieving one of them is a key milestone for the industry.

“The scrappage policy implementation for government vehicles makes complete economic sense and is ought to offer several benefits. Incentives announced in lieu of scrapping the unfit old vehicles, which include no registration charges on new vehicle purchase and exemption in road tax will bring down the average vehicle lifetime on road. Apart from boosting new vehicles demand, the vehicle scrappage policy has another obvious advantage including reduced production cost to OEMs due to the usage of recycled materials, significant decrease in tailpipe emissions and less accidents on road due to new vehicles being safer. The success of the policy now depends on the supporting policies from the state governments and establishment of robust scrappage network.

Credits: Bakar Sadik Agwan, Senior Automotive Consulting Analyst at GlobalData