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  3. Vehicle scrappage policy may not increase demand considerably: Crisil

Vehicle scrappage policy may not increase demand considerably: Crisil

21 Mar 2018 Evaluate

Credit ratings agency, Crisil Ratings in its latest report has said that the new policy for scrapping commercial vehicles (CV) that are more than 20 years old, is likely to have limited impact and may not increase demand for new vehicles considerably. The much-awaited vehicle scrap policy was given 'in-principle' approval at a high-level meeting at the Prime Minister’s Office (PMO) and is awaiting approval from the Goods and Services Tax (GST) Council.

The report mentioned that 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 28 million vehicles and their internal estimate of 6,40,000 vehicles. It also said that since 70,000 to 90,000 vehicles are scrapped every year on regular basis, the new policy would not have much of an impact on the industry. Besides, the rating agency noted that the two major changes made to the Ministry of Road Transport and Highways’ (MORTH) earlier draft note include a change in the age of the vehicle from 15 years to 20 years and implementation of the policy from April 1, 2020, coinciding with the implementation of BS-VI norms.

Crisil further 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.” It also said that Medium and heavy commercial vehicles (MHCVs) that typically have a life of 20 years, would be eligible under the scrappage scheme. It pointed out that out of the MHCVs, medium commercial vehicles (16 tonne gross vehicle weight) would benefit the most, while the number of multi-axle vehicles, intermediate commercial vehicles (ICVs), tractor trailers and light commercial vehicles opting for the scheme would be very limited. However, it said that the benefit offered under the scrappage policy is expected to be 15 percent of the vehicle's price, the effect will be muted as prices of diesel vehicles are expected to go up by 10-15 per cent once the new norms come into force.

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