auto india
Cars seen stuck in traffic in New Delhi. The scrapping policy is expected to boost the demand for heavy and medium commercial vehicles Image Credit: GN Archive

A voluntary vehicle scrapping policy to phase out old and unfit vehicles has been announced in India’s Union Budget on Monday.

Finance Minister Nirmala Sitharaman announced that vehicles will undergo fitness test in automated fitness centres after 20 years (personal vehicles) and 15 years (commercial vehicles).

This was widely expected in the Budget and this is with an aim to boost automobile demand by phasing out old, polluting vehicles.

This is expected to benefit companies like Tata Motors, Ashok Leyland, Maruti and Shriram Transport.

The auto industry had held several engagements with the government at various levels, where specific suggestions were made for demand stimulus including reduction in base GST rates from 28 per cent to 18 per cent for a limited period and an incentive based vehicle scrappage policy, which would have made it a less painful revival and kick started the industry.

After the announcement of the much-awaited voluntary policy to scrap old vehicles, Union Minister for Road Transport, Highways, and MSMEs Nitin Gadkari said that the move will reduce pollution and benefit the automobile sector.

The policy is expected to boost the demand for heavy and medium commercial vehicles, said Gadkari.

The minister added that the material recycled will be useful for the automobile industry as it will reduce the cost of manufacturing cars, buses, and trucks, increasing India's competitiveness in international markets.

He said recycled material from old vehicles will help reduce the prices. "We will take scrap from all over the world and here we will make an industry where we can use all new material and the cost will be less, and the industry will be more competitive then we will get more export orders and the import will reduce," he said.

"In the coming years, India will be one of the number manufacturing hubs of all cars, buses, and trucks, with all fuel, ethanol, methanol, bio-CNG, LNG, electric as well as hydrogen fuel cells," the minister added.