1.1 mn medium, heavy commercial vehicles older than 15 years to boost scrappage policy

New Delhi, Oct 8: The government’s scrappage policy has a significant potential with nearly 1.1 million medium and heavy commercial vehicles now older than 15 years, a report showed on Tuesday.

Rating agency ICRA projected an additional 5.7 lakh vehicles to cross the 15-year age threshold in the next two fiscal years.

Even if a proportion of these vehicles gets scrapped, it can support vehicle sales to some extent by spurring replacement demand, the report noted.

Moreover, with over 9 lakh government vehicles proposed to be mandatorily scrapped under the first phase, it offers a significant replacement demand potential for the automotive industry.

According to the report, the scrappage potential in other segments is limited, considering the limited usage of two-wheelers, passenger vehicles and light commercial vehicles (LCVs) beyond 15 years.

However, as on August 31, the registered vehicle scrapping facilities (RVSFs) had received only 44,803 private scrap applications and 41,432 Government scrap applications (including defence/impound scrap applications).

In terms of scrappage infrastructure, India has 117 RVSFs across the country at present, with 50-70 additional RVSFs likely to be commissioned in the next four-five years.

“The Vehicle Scrappage Policy has the potential to drive multiple benefits over the long term. While it will aid in reducing air pollution as older polluting vehicles get scrapped, it will also drive fleet modernisation programmes, in turn, supporting the auto industry volumes,” said Kinjal Shah, SVP and Co-Group Head – Corporate Ratings, ICRA.

The rating agency also expects a considerable reduction in scrap imports and raw material costs for automotive original equipment manufacturers (OEMs) through recycling of metals under the Scrappage Policy framework.

The Voluntary Vehicle Fleet Modernisation Programme or the Scrappage Policy, announced in India in March 2021, is being implemented in phases, with effect from April 1, 2023.

While the first phase of the policy proposed to mandatorily scrap government vehicles older than 15 years, the second phase, which started from June 1, 2024, mandates scrapping on the basis of fitness of the vehicle rather than age, and as such, is more voluntary in nature.