Projected benefits and Probable Reality: A Comparison of the Scrappage Policy

Projected benefits and Probable Reality: A Comparison of the Scrappage Policy

So far, there is no criticism about lately declared Vehicle Scrappage Policy. The honourable objective is to clean up the air and there is no question that it is high time. The fact is that there are too many shabby vehicles, such as cars, two-wheelers and trucks, that are still in force on Indian roads. The policy has come out with number of incentives for vehicle scrappage. It includes 5% discount on new vehicle purchase as well as discount up to 25% on road tax and a waiver of vehicle registration fee. Everything sounds ideal, however having worries regarding execution appears natural. So, let’s find out how far it is possible to implement and beneficial for the final consumer.

There are some assumptions which show the policy could have some issues.

  • Five percent OEM discounts could be compensate by price hikes

There is possibility that manufacturers will be pushed to offer 5 percent discount to new buyers of two-wheelers or cars after discarding their old ones. Let’s take a situation - “Why should we do something like this?” asks a two-wheeler administrative. As he clarifies, it is hard enough that over the preceding few years, his industry has been at the receiving end on charges relating to insurance, safety norms like ABS and the shift to BS6 which implicated a lot of funds.

As a consequence, expense of two-wheelers rose up steadily by more than 25 percent. And it is a major amount for the sector that purchases scooters and motorcycles. The additional complain from industries side is that they has been the victim of overregulation. It has been come off in vehicles becoming more expensive that discourages customers from buying them in the process.

And now they are supposed to offer a five percent discount to customers as part of the incentive exercise. “This is wealthy!” exclaims the administrative. It is obvious that no manufacturer is going to be so generous and simply hike vehicle prices instead by five percent. “This way, everything will be compensating,” he laugh quietly.

The setback is that an extra expense will not assist the industry’s cause particularly in a price-sensitive sector like two-wheelers. Nevertheless, there is no one to raise question against manufacturers. Even if they decide to act like this just because they are not duty bound to subsidise a scrappage scheme —in contrast, it is the Government that requires accomplishing this. “The road to hell is paved with good intentions,” jibes the administrative. The famous saying interpreted as promises and plans must be put into action, otherwise they are useless. Definitely, the scheme will take some years to be implemented however manufacturers are not going to take too easily to the fact that they will be part of the subsidy model.

  • Will States reduce road tax and registration charges?

Another assumption of the scrappage policy is that whether States will be kind in dropping down the charges of registration and road tax. Being familiar with the insecure financial situations especially after pandemic and lockdown 2020, this is obvious to be in discussion. Many of the well-heard complains about GST compensation is not measuring up, explains unsaid reasons behind not reducing levies on petrol and diesel.

At present, the price curve of petrol and diesel marks a breaking point between the Centre and States. It leads to the continuous levy of excise duty and local taxes to lend their prices reaching record high. While petrol is well over Rs 90 per litre (and even Rs 100 in some regions), diesel is way past the Rs 80 a litre mark.

Fortunately, politics has succeeded over economics in latest weeks with no additional hikes since February 27. It happened because of the assembly elections due in Tamil Nadu, Kerala, West Bengal and Assam. If it was not the reason, there would be high-possibility that both petrol and diesel would have become even more expensive.

The detailed diversion from the main discussion of scrappage just explains the context why States will not be passionate about slashing road taxes and the likes, just to perform their roles in the policy. It will be interesting to see the process of convincing States by the Centre in the provisional period— it is not going to be as easy as it seems.

  • Establishing scrap yards in an age of scrappage

The chief and unplanned challenge is to get a space of scrap yards across the country to accomplish this gigantic task. Currently, there are a few of participants in the private sector and this will be a golden opportunity for the other entrepreneurs to garb the chance and get into the sacrappage domain.

Certainly, it’s an opening to generate revenue, excepting the big obstacles could be finding the remote location where the waste will not harm the environment. As per industry source, the green lobby will be “extra vigilant” and the Centre will need to walk the tightrope carefully. “You just cannot afford to have a situation where the waste from these scrapyards affects rivers, lakes and forests,” the source states.

It does not mean that the vehicle scrappage policy is not essential. Conversely, it is extremely crucial time to save the environment from the serious threat and vehicle emissions, which plays a major part in the degradation. However, the crisis is that the Centre is processing the policy in erroneous way and issuing a set of edicts. While the better alternative would have been to involve stakeholders and then prepare a course of action.

The scenario shows the flashback to the manufacturers of the period when NITI Aayog, the think-tank of the Government, lately decided for two-wheeler makers to abandon the internal combustion engine (ICE) and clinch electric in a outrageous timeframe of 3-5 years. The time was very crucial for them. They had invested big bucks in BS6 (estimated at over Rs 80,000 crore) and had enough to worry about in an era of slow economic expansion.

As per an official statement, “Disruption seems to be the motto in recent times as seen in the diesel ban in Delhi some years back followed by the jump from BS4 to BS6 and then the clamour for electric”. It clarifies the unenthusiastic attitude to react each specific scenario.

At the end of all, there is expectation of positive and sustainable outcome from the Scrappage Policy. Moreover it should not come out on the expense of more exploitation of the public and environment.