Scrapping aged trucks and buses may lead to minimal sales push

The move to scrap 15-year-old vehicles, expected to be enacted by end of March, will only boost sales of commercial vehicles (CVs) marginally. And, the impact will mostly be confined to small and medium-duty CVs, as these would be the ones meeting the age criterion.

Heavy-duty vehicles (16-49 tonne) evolved as a segment only in the past decade and, hence, may not benefit, transporters and officials at automobile companies said. 
 

Finer details of the policy are yet to be finalised and made public. Abhay Damle, joint secretary, ministry of road transport and highways, said: “I can only say it’s under process, and likely to be concluded by end of March.”

Vinod Aggarwal, managing director and chief executive at Volvo Eicher Commercial Vehicles, said the scheme would only add fillip to an already buoyant truck market. Led by a strong replacement demand, CV sales are expected to close this fiscal year at a six-year high on the back of a strong replacement demand being led by road construction projects and a pick-up in economic activity. 

Volvo Eicher’s CV facilities, he said, were running at optimal capacity after a pause of six years. He said the company would take a call on expansion in the next three months.

On February 28, the PTI reported that the finance ministry had approved a policy to scrap 15-year-old vehicles. It had then said the policy document would go to the goods and services tax (GST) council. 

In its first phase, the scheme will target CVs and proposes to bring under its purview units bought on or before March 31, 2005, numbering about 28 million.

Though manufacturers are lauding the move, they say the impact will play out over two to three years. According to them, transporters are unlikely to rush to buy vehicles immediately.

“It’s a good move for the industry,” Ashok Leyland Chief Financial Officer Gopal Mahadevan said, adding many were waiting for the notification to see the finer details.

Mahadevan estimates an incremental volume of 600,000 to 700,000 heavy-duty trucks and buses over the next two to three years after the scheme takes effect. India sold 302,000 medium and heavy CVs in 2016-17.

Source: Society of Indian Automobile Manufacturers

CV market leader Tata Motors declined to comment for the story.

Erich Nesselhauf, managing director and chief executive at Daimler India Commercial Vehicles, said: “Removing the old and polluting vehicles from Indian roads would be the smartest thing to improve air quality very quickly. No other single measure will give the same, much-needed benefit as quickly."

Here is why it will boost sales only marginally. Heavy-duty trucks with national permits will not qualify for the programme as, owing to their restrictive age limit, they would have gone off key trunk routes already and may now be running short distances. 

Also, 15 years back, the market for heavy-duty multi-axle trucks was very small. At the time fuel-guzzling, underpowered trucks produced by Indian firms dotted the transport landscape. These trucks, still running in small towns and semi-urban areas, are the ones that will come within the purview of the policy. These trucks must have gone through multiple ownerships and are most likely being used for small trips. Such owners are, therefore, unlikely to rush to replace them.

It’s not clear how the incentive scheme will work. Some media reports said the trucker will benefit from the scrap value and from lower GST rate (GST on CVs stand at 28 per cent). To incentivise new purchase, the GST Council may also lower the rate for a limited period.

Meanwhile, analysts are of the view that fitness instead of age should be the criteria for eliminating polluting vehicles. “The aspects of pollutions are being overplayed,” said S P Singh, senior fellow at Indian Foundation of Transport Research and Training. “You are looking to cull vehicles that are anyway not being allowed to operate within city limits, where pollution is an issue. The rationale behind the move isn't clear. India being a poor country cannot afford such schemes.”