The Union Budget for 2021 and the coming decade has focused on infrastructure and healthcare. However, the automotive sector also featured in this year’s budget and the proposed policy has a major impact on the cars you buy in the coming decade.
The proposed Scrappage Policy has been anticipated for a few years now with an eye towards stimulating demand in the automotive industry. The sudden slowdown in demand in 2019 and the slump caused by the COVID-19 pandemic has pushed the Indian government to propose a new vehicle scrapping policy to revive the industry.
What is the proposed Scrappage Policy?
The voluntary vehicle scrappage policy announced by the Finance Minister aims to reduce the population of unfit vehicles driving on the road today. According to data provided by the Ministry of Road Transport and Highways, 51 percent of the vehicles on Indian roads are over 20 years in age.
By removing these vehicles from the road, the government is looking to promote adoption of newer vehicles that are equipped with modern fuel efficient and environmentally friendly technologies. This new policy has been proposed and should come into effect by 2022 at the latest.
The policy will target private and commercial vehicles above 20 years and 15 years of age, respectively. Vehicles above the maximum age will need to undergo a fitness test at a government approved automated vehicle fitness testing centre. If the vehicle fails the test three times, it will be marked for mandatory scrapping.
Scrappage Policy Key Highlights:
- Private vehicles above 20 years of age will be fitness tested.
- Commercial vehicles above 15 years of age will be fitness tested.
- Vehicles to be tested at automated vehicle fitness testing centres.
- Three failures will mean mandatory scrappage of your vehicle.
What it means for new cars?
The immediate impact on the automotive industry will be a stimulus to demand for new cars in India. This will be a positive impact for the ailing automotive industry, which has been suffering from a slump for the last two years.
With the introduction of BS6 emission norms as well as manufacturers launching new cars, 2021 and beyond will be essential for the recovery in the automotive industry. The scrappage policy will accelerate adoption of environmentally friendly vehicles as people will be incentivized to scrap their old vehicles.
What it means for used cars?
With used cars, we enter more of a grey area with regard to the proposed scrappage policy. The used car market has a variety of cars of various different ages. The most immediate impact would be an overall increase in supply of used cars. In the short-term, prices of second hand cars will come down before stabilizing at appropriate prices.
Cars that are closer to the maximum permitted age could see a sharp fall in prices. Meanwhile, cars with more than 15 years remaining could start retailing for prices that are higher than the average price for the car. This is where Spinny’s Fixed Price Assurance provides additional security to ensure you buy a second hand car at the right price.
Once the new scrappage policy comes into effect, you will have to be extremely careful and diligent when buying a used car. Knowing the correct age of the car could help you buy a pre-owned car for the long-term. If you’re buying a used car closer to its permitted maximum age, you should be prepared to undertake the fitness tests at the appropriate time.
Is it sensible to buy a used car after the policy comes into effect?
Even with the new scrappage policy in effect, used cars will continue to offer great value as compared to new cars. A majority of the pre-owned cars in India are 5 years old when they are sold. This means there is plenty of life left in the used car you buy before you have to consider scrapping the car.
If you are someone who owns a car for at least 5 years, used cars remain a sensible choice to buying a great car at a lower price. However, if you are considering a 10 or 15 year old car, you will need to balance the value proposition against the possible inconvenience associated with scrapping the car.
How should I scrap my car in India?
Scrapping a car isn’t as straightforward as it should be. There is currently a lack of vehicle scrapping facilities in India. At present, car manufacturers like Mahindra and Maruti Suzuki have stated that they are exploring vehicle scrapping options. In the near future, you should expect to be able to upgrade to a new car by simply driving to a showroom and selling your old car for scrap.
