India’s vehicle scrappage policy, aimed at modernising the country's fleet and reducing pollution, has the potential to impact over 1.1 million medium and heavy commercial vehicles (M&HCVs) older than 15 years, according to a new report by Icra. However, the policy's implementation remains slow due to challenges such as a limited network of registered vehicle scrapping facilities (RVSFs), inadequate incentives and a lack of awareness, particularly among private vehicle owners.
Icra estimates that the potential for scrapping these M&HCVs, while significant, may not be fully realised due to the nature of vehicle usage. Despite this, even partial scrappage could support the automotive sector by driving replacement demand. The report projects that an additional 5.7 lakh vehicles will cross the 15-year age threshold by FY2026, further adding to the pool of vehicles eligible for scrapping.
Notably, over 9 lakh government vehicles are expected to be scrapped under the first phase of the policy, which mandates the removal of vehicles older than 15 years. This is expected to generate substantial replacement demand for new vehicles in the market.
The rating agency noted that the scrappage potential for two-wheelers, passenger vehicles, and light commercial vehicles is minimal due to lower usage beyond 15 years. As of 31 August 2024, only 44,803 private and 41,432 government scrap applications had been received by RVSFs, indicating the slow pace of policy adoption.
Scrappage Policy Phases
The first phase of the scrappage policy, initiated in April 2023, focused on government vehicles, while the second phase, introduced in June 2024, mandates scrapping based on vehicle fitness rather than age. This phase is voluntary and encourages vehicle owners to replace unfit vehicles through incentives like tax rebates and fee waivers.
India currently has 117 RVSFs, with an additional 50-70 expected to be set up in the next four to five years. Most RVSFs are concentrated in metro and tier-1 cities, but the network is expected to expand to other regions as awareness increases and the Government enforces tighter regulations.
According to Kinjal Shah, Senior Vice President and Co-group Head– Corporate Ratings, Icra, the policy holds immense potential to reduce air pollution and promote fleet modernisation, but its implementation faces several obstacles. “Limited scrapping infrastructure, inadequate incentives, and low awareness have slowed down the policy’s progress. To accelerate scrappage, the Government needs to enhance incentives and streamline the process,” Shah said.
In countries like the United States (US) and Western Europe, scrappage programs are typically incentivised with direct monetary compensation, while India’s approach includes voluntary incentives like discounts, road tax rebates, and waivers, alongside disincentives such as fitness tests and green taxes on older vehicles.
