The vehicle scrappage policy is expected to stimulate replacement demand, according to a recent ICRA report. As of March 31, 2024, around 1.1 million medium and heavy commercial vehicles (M&HCVs) over 15 years old were identified as potential candidates for scrappage. However, given the usage patterns of these vehicles, the actual scrappage rate may be lower. Nevertheless, even a partial scrapping of these vehicles could drive replacement demand and support vehicle sales.
ICRA estimates an additional 570,000 vehicles will surpass the 15-year mark in the next two fiscal years (FY2025 and FY2026). Additionally, with over 900,000 government vehicles set for mandatory scrappage in the first phase of the policy, significant replacement demand is anticipated in the automotive sector.
While the scrappage potential for two-wheelers, passenger vehicles, and light commercial vehicles (LCVs) is limited due to their lower usage beyond 15 years, as of August 31, 2024, only 44,803 private scrap applications and 41,432 government scrap applications (including defense/impound) had been submitted to registered vehicle scrapping facilities (RVSFs).
The Voluntary Vehicle Fleet Modernisation Programme, also known as the Scrappage Policy, launched in phases starting April 1, 2023, with the mandatory scrapping of government vehicles over 15 years old in its first phase. The second phase, initiated on June 1, 2024, mandates scrapping based on vehicle fitness rather than age, making it more voluntary.
Kinjal Shah, Senior VP & Co-Group Head – Corporate Ratings at ICRA, noted that the scrappage policy has the potential to deliver long-term benefits, including reducing air pollution by eliminating older, more polluting vehicles and promoting fleet modernization, which would boost auto industry sales. Additionally, the policy could lower scrap imports and raw material costs for automotive OEMs by recycling metals.
India currently has 117 RVSFs, with plans for 50-70 more over the next four to five years. Though these facilities are mostly in metro and tier-1 cities, more are expected to be established nationwide as awareness of the scrappage policy grows and the government enforces it more strictly. Alongside the RVSFs operated by auto OEMs, unorganized scrapping centers across the country will play a complementary role in scrapping and recycling end-of-life (ELV) vehicles.
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