DNA Explainer: FM announces vehicle scrappage policy, 5 points as to what it means

Finance Minister Nirmala Sitharaman has announced in her Budget 2021 speech that the Indian government will introduce vehicle scrappage policy in India to boost the sales of new vehicles. In order to help the Indian auto sector, the Indian government has decided to bring in a voluntary vehicle scrappage policy. 

A vehicle scrappage policy is a programme that helps the replacement of old vehicles with new ones. It encourages vehicle owners to scrap vehicles older than 15 years and purchase new ones instead. In order to facilitate this, the government offers financial or tax-based benefits to consumers on the purchase of new vehicles. Another major advantage of such a scrappage policy is that it helps reduce air pollution by removing older and more polluting vehicles from the roads. 

The automobile sector, especially the manufacturers were struggling even before the COVID-19 pandemic struck. The COVID induced lockdown worsened the situation and witnessed the auto companies record zero sales for the first time in history. However, this policy can boost the sales of automobiles as vehicle owners will be encouraged to do away with their old vehicles and instead buy new ones.

Vehicle scrappage policy pointers

The vehicle scrappage policy is aimed towards old polluting vehicles on Indian roads and directs them to the scrapyard.

As the 15-year-old vehicles have a low resale value, these vehicles can be sent to scrapyards, providing the owner with some monetary benefits.

This will have two-fold benefits - financial aid for the owners to get rid of such vehicles and putting these polluting vehicles out to help the environment.

Vehicle owners could opt to buy new vehicles post scrapping their old one, which could boost demand in the automobile sector.

Re-using the scrap materials like steel and aluminium for manufacturing new vehicles.

What it means for Auto Industry?

Scrapyards consists of shredders which will help recycle the almost redundant vehicle and in return help the environment from pollution. However, the real challenge is to define the set process and how to get rid of parts that cannot be used once again in an environment-friendly manner.

And keeping in mind that there are likewise questions relating to the benefits add up to be given to owners getting their old vehicles - how much, who will give and what rules to be followed, the conspicuous and multi-faceted advantages of the arrangement itself is sponsored by most.