The Next Driver of the Auto Sector

Wed, 25 May Pre-Open

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The rate at which air pollution has grown across India is alarming. Until now the issue was treated with scant importance. However, with rising awareness on the topic, the government has taken some steps to bring this under control. Some of the recent measures include ban on registration of diesel vehicles and the odd-even rule implemented in Delhi.

The reason we are talking about air pollution today is the old-vehicle-scrapping-policy. The policy has been recently proposed by the government and has some good news for the stock market. The policy, says Nitin Gadkari, Union Minister for Road Transport, will boost the automobile industry turnover over four-times in the next five years.

Before delving into the practicalities, let's understand what the scrapping policy offers.

The biggest polluters in India are the old vehicles. These do not adhere to the strict vehicle emission norms. To curb the pollution caused by them, the government has formulated a policy that will encourage the owners to scrap 10-12-year-old cars.

It is proposed that people will get an incentive of about 10% of the cost of the vehicle when they surrender the number plate of an old car. This coupled with tax concessions and matching discounts from the car manufacturers will be given on the purchase of a new car.

In all, the policy will cater to social as well as economic requirements.

The owners of old vehicles will get a deal for themselves. They will be incentivized for scrapping their old vehicle and promoted to buy a new one. There will be new vehicles plying on Indian roads and thus less pollution. Further, the government will get more money from taxes on new vehicle purchases. There will be a boost in employment as well as the GDP of the country. The policy will also benefit interlinked sectors. For example, the steel industry will get good quality scrap, and hence less dependent on imports.

The most benefitted will be the automobile industry. As stated earlier, the policy will boost the automobile industry turnover from about Rs 4,500 billion at present to Rs 20,000 billion (4x) in the next five years. Further, the government stated that with this policy, India can be the top most country to export the world's best cars.

Thus, investors can look out for investment opportunities in the automobile space going forward.

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