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The vehicle scrappage policy announced by the Central government on Thursday will reduce India's oil import bill as fuel efficient vehicles will be on the roads, said credit rating agency Care Ratings.

The rating agency also added that the policy has a potential to increase the automobile industry's turnover to Rs 10 lakh crore from the existing Rs 4.5 lakh crore.

According to Care Ratings, the vehicle scrappage policy is expected to be a 'win-win' for all as it would also reduce environmental pollution and improve road and vehicular safety by getting rid of old and defective vehicles, boost the availability of low-cost raw materials like plastic, steel, aluminium, steel, rubber, electronics and others for the vehicle makers.

Union Road Transport and Highways Minister Nitin Gadkari on Thursday announced the vehicle scrappage policy in the Lok Sabha.

The policy proposes to de-register commercial vehicles after 15 years in case of failure to get the fitness certificate. As a disincentive measure, increased fees for fitness certificate and fitness test may be applicable for commercial vehicles 15 year onwards from the date of initial registration.

The private vehicles are proposed to be de-registered after 20 years if found unfit or in case of a failure to renew registration certificate. As a disincentive measure, increased re-registration fees will be applicable for private vehicles too after this period.

The government also proposed that all vehicles of the Central government, state government, Municipal Corporations, Panchayats, State Transport Undertakings, Public Sector Undertakings and autonomous bodies with the Union and State governments may be de-registered and scrapped after 15 years from the date of registration.

In the next few weeks, draft notifications will be published and be in the public domain for a period of 30 days to solicit comments and views of all involved stakeholders, Gadkari said.

According to Care Ratings, the financial incentives for a vehicle user are lucrative enough to scrap their vehicle and hence, is expected to lead to an increase in sales volumes of the industry in the medium to long term.

Adding a note of caution, the credit rating agency said the proper implementation of this policy is pivotal for it to be a success, which may help India gain competitive position globally and be among the leading manufacturing automobiles hub.

The headwinds for implementation would be in the form of having more infrastructure in place to build organised scrapping centers, which currently India does not possess.

To further incentivise the consumer, there should be GST (Goods and Services Tax) concessions on purchase of new vehicles, as tax rates in India on new automobiles are exorbitant," the rating agency said.