New scrappage policy to have limited impact, says CRISIL Research

The new policy for scrapping of 20-year-old vehicles is likely have limited impact and may not boost demand for new vehicles significantly, CRISIL Research on Tuesday said.

The much-awaited policy has received a go-ahead from the Prime Minister’s Office and is awaiting approval from the goods and services tax (GST) council.

“The total population of commercial vehicles that will be older than 20 years in fiscal 2021 would be 50,000 vehicles, much lower than the government’s earlier estimate of 2.8 crore vehicles and our internal estimate of 6,40,000 vehicles. In any case, 70,000 to 90,000 vehicles are scrapped every year. So, we believe the impact of the scrappage policy will be limited,” CRISIL Research said in a statement.

As per the draft policy released by the Ministry of Road Transport and Highways (MORTH) in May 2016, vehicles older than 15 years were eligible for benefits under the scrappage scheme.

However, as per the latest update, only vehicles older than 20 years will be eligible to opt for the scheme from 1 April, 2020.

As per the latest update, the two major changes made to MORTH’s earlier draft note include change in the age of the vehicle from 15 years to 20 years and cut off date for implementation from 1 April, 2020, coinciding with the implementation of BS-VI norms, the rating agency said.

“If we look at the various vehicle segments in the commercial vehicles industry, very few vehicles would actually be older than 20 years in the current vehicular population. Medium and heavy commercial vehicles (MHCVs) that typically have a life of 20 years, would be eligible under the scrappage scheme,” it said.

It added that under MHCVs, medium commercial vehicles (16 tonne gross vehicle weight) would benefit the most, while the number of multi-axle vehicles, intermediate commercial vehicles, tractor trailers and light commercial vehicles opting for the scheme would be very limited.

“Though the benefit offered under the scrappage policy is expected to be 15 per cent of the vehicle’s price, the effect will be muted as prices of diesel vehicles are expected to go up by 10 to 15 per cent once the new norms come into force,” it added.