ICRA estimates that as of March 31, 2024, around 1.1 million medium and heavy commercial vehicles (M&HCVs) in India are over 15 years old, presenting a significant opportunity for vehicle scrappage under the country's Vehicle Scrappage Policy.
However, the actual number of vehicles scrapped may be lower due to the nature of their usage, though even partial scrappage could stimulate replacement demand and support vehicle sales.
ICRA further projects that an additional 570,000 vehicles will surpass the 15-year age mark over the next two fiscal years (FY2025 and FY2026). Moreover, the mandatory scrapping of over 900,000 government vehicles in the first phase of the policy presents a considerable replacement opportunity for the automotive industry. While other vehicle segments, such as two-wheelers and light commercial vehicles (LCVs), are less likely to be scrapped due to lower usage beyond 15 years, the potential in the commercial vehicle segment remains substantial.
The Vehicle Scrappage Policy, announced in March 2021, aims to modernise India's vehicle fleet and reduce pollution by scrapping older, more polluting vehicles. The policy is being implemented in phases, with the first phase, starting April 1, 2023, mandating the scrapping of government vehicles over 15 years old. The second phase, which began on June 1, 2024, takes a more voluntary approach by requiring vehicle scrappage based on fitness rather than age.
Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings at ICRA, noted the long-term benefits of the policy. “The Vehicle Scrappage Policy has the potential to drive multiple benefits, including reducing air pollution by scrapping older vehicles and supporting fleet modernisation, which in turn will aid automotive industry volumes. Additionally, the policy could reduce the import of scrap metal and lower raw material costs for automotive original equipment manufacturers (OEMs) through recycling.”
However, Shah also highlighted the challenges hindering the policy's implementation. The limited network of Registered Vehicle Scrapping Facilities (RVSFs), inadequate incentives, low awareness among private vehicle owners, and issues with registration date criteria have slowed the policy's progress. While countries in North America and Western Europe offer monetary incentives for scrapping vehicles, India relies on voluntary incentives such as discounts, tax rebates, and fee waivers, as well as mandatory disincentives like green taxes and higher renewal fees for older vehicles.
As of August 31, 2024, RVSFs had received only 44,803 private and 41,432 government scrap applications. India currently has 117 RVSFs, with plans to commission an additional 50-70 facilities in the next four to five years. Most RVSFs are currently concentrated in metro and Tier-1 cities, but further expansion is expected as awareness of the policy increases and government enforcement tightens.
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