The vehicle scrappage policy is coinciding with the auto sector coming out of the Covid-19 impact. Is the policy in the current form good enough to boost demand?
The biggest plus point for this policy is that it recognises the importance of maintaining vehicles properly. For the citizens at large, it is important that the vehicles are fit in terms of safety, in terms of environment and that has been recognised for the first time by the government and Mr Gadkari deserves kudos for having done that.
While it is good for the consumers, what does it mean for the OEMs because the policy also rests on the fact that almost 5% of discounts will have to be shelled out by the OEMs? Are OEMs ready to shell out about 5% more discount to incentivise existing vehicle owners to scrap vehicles and purchase a new one?
That is just an advice from the ministry. This policy of scrappage is not going to come into operation as far as cars are concerned for another three years, that is till 2024. A lot of discussions will take place with the government. I can understand the delay because you need to build the infrastructure. We do not have the mechanism today to certify vehicles’ fitness in a manner where the integrity of the certificate is above question. It should not be that you pay a certain amount of money and get a certificate. So it requires a proper infrastructure and proper operating system. That will take time and during this time, a lot of clarifications and other modifications are likely to happen.
From the citizens’ point of view, it is important that vehicles remain fit not only at the end of 20 years or 15 years of their lives but throughout the life of the vehicle. Citizens are in danger if a vehicle becomes unfit after five years. So some form of regular fitness check would be required. The vehicles will have to be tested and repaired accordingly because people today break a break light or an indicator light or a headlight and do not bother. These are all factors of safety and have to be properly attended to. It will be good for the auto industry because the workshop jobs will increase, the spare part consumption will increase and the consumer will be happy that vehicles do not break down and hold up traffic. It is a win-win for everybody.
While the policy is voluntary in nature, are there enough incentives in place to also bring the vehicles to the scrapyard?
If a vehicle is required to be tested for fitness, the vehicles will be required to be tested. Today it says after 15 and 20 years but possibly the government will change that. If a vehicle is not fit, then there is no voluntary scrapping at that point. It becomes a compulsory scrapping because an unfit vehicle cannot ply. It cannot be registered and is not allowed on the road. I cannot sell an unfit vehicle because a customer buys a fit vehicle. The company requires that he should not be allowed to operate it on the roads if it becomes unfit after any period of time and not necessarily after 20 years or 15 years.
The government has put out that state governments may be advised to offer a road tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles. Clearly the ball is now in the court of state governments as well. Do you think state governments will agree?
I would welcome a rebate because some of the state taxes are very high. But logically, if a vehicle is unfit and it has to be scrapped because it is unfit, where is the need for giving him any incentive to buy a new vehicle? He has an unfit vehicle and that should not be allowed to be used. It is hazardous for everybody. He is not doing anyone a favour if it becomes an unfit vehicle. If he finds the cost of repairing it to restore it to the required levels of fitness too high, he has to scrap it. So where is the need for an incentive for that is not very clear to me.
Are you saying that the industry is not okay with the 5% discount that the minister has asked the industry to give for the vehicles that are going to be scrapped?
The government has only said that this is an advice to the industry. But this needs to be further discussed with the government. If people were scrapping vehicles while they were still fit and it was done to bolster demand like it happened in many countries in the past that for a temporary period, the government gave incentives for vehicles to be scrapped, that I understand. But when an unfit vehicle is scrapped, why should the customer get any incentive for scrapping it?
I understand why you are saying that there should not be any incentive for scrapping an unfit vehicle. Given that this is an advice, what kind of conversations do you look to have with the Centre? Do you believe the Centre should incentivise the rest?
We are starting on the new aspect of vehicle fitness certification. We have not had it all these 70 years that we have been making cars in India and it is going to take time to develop this. Mistakes will be made. Corrections will be needed to be applied and then an appropriate solution will be reached. So what is being said today will not necessarily be the final word on what the policy will be. All of us need to be a little bit more accommodating and understanding that when you start something, you do not get it 100% right.
When you are saying we need to build infrastructure, what are you referring to? What will the auto industry look to seek from the government at this point of time?
You need a centre where vehicles can be brought for testing and certification whether they are fit or unfit or whether they need to go back for workshop and get certain repair work done. That means appropriate equipment are needed to get the necessary tests done. These should be as automated as possible so that human factors do not come into the certification process. The records of testing should not be alterable and therefore the integrity of the certification has to be ensured. Now this will require investment in a lot of modern equipment for testing and certification. This is something which has to be done — as the ministry has said — on a PPP model. Industry, associations and manufacturers will all have to get together to work out how these centres should be established. There is nothing like this today.
Petrol prices in various parts of the country have almost touched Rs 100 per litre. Is that something that worries you and could it dampen the demand going forward?
I do not know what will happen in the future because the prices of petrol and oil keeps fluctuating all the time and this time, it has gone up. We do not know what will happen in the future but all experience shows that petrol prices by themselves are not necessarily as much of a damper on demand as the initial taxation on the vehicle when you buy a vehicle and on the terms of financing.
As financing is available comparatively easily and the interest rates have become much better, I think people are willing to buy vehicles and the market today shows that customers are quite happy to buy vehicles even though petrol is over Rs 90 a litre.
How do you compare the scrappage policy vis-à-vis the cash-for-clunkers scheme that was rolled out post 2008 recession in the European markets?
They are very different because that policy was not based on vehicle fitness and policy did not attempt to introduce people to a concept that vehicles have to be maintained and have to be fit so that they do not endanger the environment and road users. That policy was only to create a temporary demand for vehicles so that manufacturers could get over that serious recession in demand. The objectives were very different.
We are going to be entering the new fiscal year. Where do you see things headed in terms of car sales given that Covid cases are rising even though the vaccinations are going on?
We must not let this Covid resurgence strengthen any further. Prime minister has also talked about nipping this in the bud by accelerating the vaccination programme. I hope all the states and all the agencies concerned will do this rapidly and take all steps which are required to step up vaccination, the followup testing and whatever is required.
If Covid is controlled adequately and the economy continues on the positive growth path, car demands will remain good this year. We have to prevent the demand falling off if the prices of the vehicles go up rapidly. Raw material costs are going up. The regulatory requirements are going up. Those are some of the areas the government will have to look at both from the industry and the central government point of view and for employment creation, everybody should work together to ensure that demand does not fall off.
