The domestic commercial vehicle (CV) segment witnessed a steep volume contraction of 29% in FY2020, as it battled multiple headwinds. Challenges such as overcapacity in the trucking system, subdued freight availability due to a weak macroeconomic environment, cost increases due to new emission norms (BS-VI), financing constraints, and stress on the cash flows of fleet operators, have all aggrevated with the onset of the pandemic, and the lockdowns imposed to contain the same. Accordingly, fleet operators cut back new vehicle purchases, resulting in the 85% and 55% contraction in CV retail volumes witnessed in Q1 and Q2 FY2021 respectively.
The Scrappage Policy, relevant for the CV industry, has been long overdue after its initial draft was proposed in May 2016 and actions may be expected this year. The benefit of the Scrappage Policy to the industry will depend on a) the age qualification for the scrapping vehicles and b) the extent of the incentive offered. In case the age qualification is kept for vehicles older than 15 years, the impact will be muted as only a limited number of vehicles would qualify for the scheme. The CV parc older than 15 years is estimated to be around 650,000 units only. Such older trucks are generally used in hinterlands for short-haul operations by the SFOs; hence, are unlikely to be replaced, without significant commercial incentives.
A well-defined vehicle scrappage policy in India can help create an industry of its own with a business opportunity of $6 billion (Rs 43,000 crore) a year. It could generate fresh employment and trigger economic growth, and also act as a critical factor to revive the automobile market that has been hit by a prolonged slowdown. The government expects recycling of metals like steel, copper and aluminium from the scrapped vehicles to help reduce their imports. Getting the roads rid of old vehicles would also help lower pollution and the government’s oil bill, as the new vehicles replacing the old ones would be more fuel efficient.
The policy can be a win-win for all as the consumer would benefit from the scrap value, GST savings and discounts, while a dealer would gain from demand for new vehicles. For a vehicle maker, recycled metals would be available at a cheaper rate, and the government could save forex because of lower imports of these raw materials as well as get tax revenue from new vehicle sales. Already the likes of Maruti Suzuki and Mahindra & Mahindra have ventured into the recycling business and there are another half a dozen companies in queue to enter the space, say people in the know. The challenge is that scrap yards will take time to build.
The automobile industry wants the policy to cover all segments, including cars and two-wheelers and not just commercial vehicles, to create a significant scale for new players to participate in this new market. A recent study has estimated the market for vehicle scrappage and recycling at $6 billion. According to it, if the policy is defined well, 9 million vehicles could go off roads by fiscal 2021 and 28 million by 2025, largely comprising two-wheelers. It would reduce carbon dioxide emission by 17% and cut particulate matter in air by 24%. Also, if half the Bharat Stage-II and III vehicles go off the roads, it would save 8 million tonnes of oil a year.
The other factor which has a significant bearing on the automotive industry over the medium-to-longer term is the recently announced PLI scheme. The scheme aims to make India a part of the global value chain in manufacturing and plans to attract fresh investments. It has allocated Rs 57,000 crore for the auto segment and another Rs 18,100 crore for the advanced chemistry cell batteries (Li-Ion battery). These incentives have the potential to kickstart significant investments in the coming years and help the industry achieve globally competitive scales in the chosen segments. The operational details of the scheme, however, would be known only in the coming years.
Exemption from import duties on coking /anthracite coal: The Basic Customs Import Duty on Anthracite/Coking Coal is 2.5%. Since it plays a vital role in the manufacturing of Steel, it is necessary to make coking /anthracite coal available at international competitive price to make Indian steel mills more competitive. It is therefore recommended that Customs duty on Anthracite/Coking Coal as mentioned above to be reduced to NIL.
Enhancement of export duty on pellets: There is severe shortage of Iron Ore in the country due to various reasons, impacting the production of Steel in the country. This exemption from export duty on pellets is causing further shortage of iron ore in the country due to enhanced export of pellets. Therefore, in order to conserve the iron ore / pellets for the domestic consumption, it is necessary that pellet exports are discouraged by imposing the same export duty as in case of iron ore i.e., 30% on the export of pellets having Fe Grade 60% or higher
Exemption from import duty on steel grade limestone and dolomite: While cement grade limestone reserves are adequate, SMS, BF and Chemical grade limestone (required by the steel industry) are not adequate and occur in selective areas. Increase in steel production in the country, has led to rising demand for SMS and BF grade limestone. Therefore, the limestone imports have been increasing consistently. So, it is requested to exempt the Customs Duty on the limestone (CTH 2521) and dolomite (CTH 2518) from 2.5% to NIL imported for Metallurgical use in line with similar imports from ASEAN countries, without any technical condition.
Alignment of rate of GST on services provided by Govt.: it is suggested that the tax structure relating to supply of services by Govt. in respect of mines be aligned with the rate of services under SAC 997337 @5% which is applicable to ores instead of 18% at present.
Latin Manharlal Group