Auto stocks extended gains for the second consecutive session today after FM Nirmala Sitharaman announced a voluntary vehicle scrappage policy to phase out old vehicles in her third budget speech.
BSE auto index rose up to 1,021 points to 24,079 against previous close of 23,058. The index has gained up to 1,954 points in two sessions. On February 1, the index closed at 23,103 against previous close of 22,170.
The phasing out of old vehicles will be a good move for the auto industry since it will lead to more demand for new vehicles particularly e-vehicles. The introduction of new vehicles on road will result in lesser pollution and a reduced oil import bill due to use of new technology in the units. The policy will be implemented from April 1, 2022.
The prospect of rise in demand has enthused auto industry which has seen a slowdown in sales due to COVID -19 crisis and the ongoing recession.
On Monday, FM Sitharaman stated that under the voluntary vehicle scrapping policy, personal vehicles would undergo a fitness test after 20 years, whereas commercial vehicles would need to take it after completing 15 years. Finance minister added that this would promote fuel-efficient as well as environment friendly vehicles while helping the government slash India's massive import bills.
Union Road Transport Minister Nitin Gadkari had earlier said that a policy to scrap over 15-year-old vehicles owned by government departments and PSUs is likely to be notified soon and will be implemented from April 1, 2022. The policy is already approved by the government.
"The minister... approved the policy of deregistration and scrapping of vehicles owned by government department and PSU, which are above 15 years in age," the Ministry of Road Transport and Highways had said in a statement.