India's vehicle scrappage plan is unlikely to produce desired results, according to analysts at GlobalData, parent company of just-auto.
Following the news that India had issued draft guidelines for setting up authorised vehicle scrapping facilities across the country, Animesh Kumar, director of automotive consulting, said: "The draft guidelines released by the Ministry of Road Transport & Highways (MoRTH) will certainly be beneficial and help in creating an organised sector for vehicle scrapping.
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"However, they are unlikely to produce the desired results.
"Broadly, there are two elements of a typical scrappage plan. The first is about 'retiring vehicles from the road' wherein old vehicles or vehicles that are no longer roadworthy are discarded. The process can be voluntary or statutory and is based on the 'end of life [rules]. Such [rules] define the maximum age and/or mileage of a vehicle after which it must be scrapped.
"The second element of a scrappage plan is about the actual process of scrapping the vehicles. The current draft guidelines deal with the second element while largely ignoring the first.
"An all-encompassing scrappage policy that includes end of life vehicle [rules] has several benefits.
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By GlobalDataThey include increases in safety, environment friendliness and growth in new vehicle demand.
"Currently, when the automotive industry in India is experiencing a painful slowdown, the market participants were hoping for an 'end of life' policy that can help in reviving the market through creation of replacement demand.
"Moreover, inclusion of incentives for voluntary scrapping of vehicles – similar to the 'Cash for Clunkers' programme used in the US in 2009 – could have encouraged vehicle owners to trade in their old vehicles."
