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Scrappage Policy 2021 and Electric Vehicles
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Published on 2nd Aug 21

Scrappage Policy 2021 and Electric Vehicles

Post-Covid Era, this policy is an amazing step for achieving a green step towards emissions by EVs.

India’s automobile scrappage policy was introduced in the 2021 budget session. It aims at replacing end-of-life vehicles (ELV) by accepting incentives for scrappage or disincentives for retaining them.

Under this policy, the ELV scrap value is fixed- at 4%-6% of the ex-showroom price of the new purchase. Owners of personal vehicles more than 20 years and commercial vehicles older than 15 years must bid farewell to their rides if found unfit. Even to retain a personal vehicle that is older than 15 years is possible but at a cost. Electric Vehicles are free from paying the green taxes proposed for personal vehicles at the time of re-registration. Green tax is relevant in some cities, but this is now required to be imposed nationwide with differing rates, with highly polluted cities going up to nearly 50% of the road tax.


It makes India one of the developing nations which have taken steps towards sustainable development in the EV industry. For an average Indian, this says for some cost-benefit analysis before heading onto their automobile's 15th anniversary.

India stands for its automobile industry in the world. It features among the top 10 automobile producers. In terms of expansion of the auto sector, India is a strong opponent among countries such as Germany, the USA, the UK, Canada, France, also a few Nordic countries. Although, when the sector is disaggregated into many fragments notable differences emerge with important takeaways for India.

Independent estimates 80% of the Indian EV market is dominated by two-wheelers. The share of four-wheelers is only a little over 10%. The remaining are small shares of commercial vehicles and luxury cars. It is an edged contrast with other countries, where the two/three-wheeler fragment is relatively less dominant.

Most of these countries introduced temporary scrappage policies in the aftermath of the 2008 global financial crisis at a pace towards economic recovery. The typical lifespan of the old automobile is nearly 9-10 years, after which it qualifies for scrappage benefits. Hence, it is supposed to be less than the upper limit proposed in India- 15 years with a consistency of re-registration to extend the life of personal vehicles for another five years.

While the life span of an automobile is a common criterion, other criteria such as emissions requirement and distance covered are required. It is worth noting that countries such as France and Italy provide scrappage incentives for vehicles over ten years of age, which have an emission criterion. Hence, these countries demonstrated a strong, and steady rising presence of EVs over the decade following the development of scrappage policies.

Countries such as Canada, Germany, France, the USA, and the UK share EV sales (%) have risen over the period 2011-2020, its corresponding figures for India are not particularly encouraging. According to the Global Electric Vehicle Outlook 2020 published by International Energy Agency (IEA), the market growth of electric cars in India has been stubby, not more than 0.1% during 2005-2019.

It brings up the question- what does the scrappage policy mean for the Indian EV market? Does it aid swap from ICE to EV? Here is what one must look. Share market response to the policy announcement affirmed which, is well received by the Indian auto sector.

Shares of Mahindra & Mahindra rose by 6%, followed by other key players. Industry experts are particular about their new car sales predictions based on simple economics. As people move away from older vehicles, the result would be an uptake in new ones. Rebates and concessions again work to this end. Since it is reasonable to expect that demand for Electric vehicles increases. It might not be the case due to the availability of a close substitute-ICE vehicle. When compared to EVs, ICE vehicles have the advantage of being tested and tried. However, they are low-priced at the time of purchase. Exemption of EV and steady hybrids from additional taxes does seem like a successful step of EV demand.

Another aspect of the policy is focused on the state's approval. Allowing road tax concessions of up to 15% and 25% for personal and commercial vehicles respectively is a long hit. Likely, green taxes may not be applied uniformly to all states. As such, exempting EVs from additional tax loses value if a state does not charge it for gasoline vehicles. Such variability leaves the future market trend for electric vehicles at the consumer preferences and behavioral tendencies, which takes their time to change. Thirdly, when OEMs provide discounts and lucrative rebates on new EV sales, it might translate into price rises as a compensatory move to maintain markup.

Finally, scrappage incentives can only result in a mild high in sales of EVs in the short run as ICE vehicles and alternative fuel vehicles retain their edge. The FAME 2 scheme is a crucial incentive towards electric vehicles over 40% of total outlay is bookmarked for electrification of buses, the remaining being allocated to 2 and 3-wheelers and plug-in hybrids. Meanwhile, the development of infrastructure for plug-in hybrids is bound to reverse gradually. Altogether, these factors can promise that EV adoption in India changes.

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