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Scrappage scheme can boost commercial vehicle sales 65% by 2020: Report
Moneylife Digital Team 22 February 2017
Economy & Nation
The Voluntary-Vehicle Modernisation Programme (V-VMP), announced by the Ministry of Road Transport and Highways, can boost commercial vehicle (CV) sales volume by a cumulative 65% (over sales in fiscal 2016) between fiscals 2018 and 2020. However, the government needs to provide a cash discount, or make tradeable the V-VMP incentive certificate issued to transporters, says a research report.
 
According to the note from CRISIL, during FY2016, about 6.8 lakh CVs worth Rs66,500 crore were sold. The V-VMP scheme could lead to incremental sales of 4.4 lakh CVs, primarily medium and heavy CVs (MHCV), worth around Rs66,000 crore.
 
"In addition, two lakh CVs would get scrapped and replaced in the normal course through the three fiscals, given the current junking rate of about 67,000 CVs annually. Hence total vehicles opting for the scheme would be 6.4 lakhs," the report says.
 
“Based on the equation of current resale value versus benefits offered under V-VMP, we expect trucks that are 13 years old or older opting for it. For trucks newer than 13 years, current resale value is more than the benefits offered under the scheme. In case additional dealer discounts are not offered, cut-off age of trucks opting for the scheme could go to 14 years,” says Prasad Koparkar, Senior Director at CRISIL Research.
 
As per the report, more than 85% of the incremental sales would be of medium and heavy trucks because of their lifespan of around 20 years. So, many of them bought before the March 2005 cut-off date for the V-VMP scheme would still be plying.
 
Intermediate commercial vehicles and tractor-trailers, too, have a similar lifespan, but those purchased before March 2005 are few in number. Pick-ups, upper light CVs and MHCV buses, which have a lower lifespan of 15-17 years, will have a smaller share in vehicles being scrapped, as most of them would anyway have been scrapped.
 
Sub-1 tonne CVs would benefit the least, given that the segment was created only in 2005 and vehicles would have been purchased after the V-VMP cut-off date, the report added.
 
Given that the scrap value offered by the scheme can be availed of by transporters even in the open market, the actual additional benefit in V-VMP would be on account of excise duty and road tax waivers, and some additional dealer and manufacturer discount. However, dealers are already offering 8%-10% discount on purchase of new trucks, and hence further sops would be hard to come by.
 
Binaifer Jehani, Director, CRISIL Research, says, “Transporters scrapping old CVs are not buyers of new CVs, since their business is viable using only an older truck. Considering this, the government needs to either provide a cash discount to those junking old vehicles or make the V-VMP incentive certificate issued to transporters tradable.”
 
CRISIL feels that large fleet operators (LFOs), who are the main buyers of new trucks, would want to buy such certificates from small operators availing of the scheme. Tradable certificates can be aggregated at the dealer level, to be further sold to LFOs.
 
The report further says, "A buyer might scrap a medium commercial vehicle (about 35% of vehicles availing of the scheme) and go for a multi-axle vehicle. Meaning, the buyer could avail of excise duty waiver on a more expensive and less fuel efficient vehicle, which would defeat the purpose of V-VMP."
 
"The government could consider a cap on the engine cc differential between scrapped and new CVs bought under the scheme. Alternatively, the government could provide different incentives based on engine cc of new CVs bought versus that of old one scrapped – or offering lower benefit for higher differential in engine cc," the note from CRISIL concluded.
Comments
ramesh kumar gupta
9 years ago
good for economic development and envoirnment
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