Higher Fitness Fees to Accelerate India’s Vehicle Replacement

India’s recent decision to sharply raise fitness test fees for ageing vehicles is expected to give a decisive push to the country’s long-standing vehicle scrappage plans. According to Kumar Rakesh, India Analyst – Auto & IT at BNP Paribas, the move could gradually stimulate replacement demand, particularly in the commercial vehicle market, which has been waiting for a sustained revival.

Speaking to CNBC-TV18, Rakesh noted that while India’s formal scrappage policy has been in place for a few years, it has not yet translated into large-scale replacement cycles. The latest revision in fitness certificate fees, however, could act as the turning point. The government has shifted the higher-fee threshold from 15 years to 10 years and introduced three distinct slabs—10–15 years, 15–20 years, and above 20 years. Fees increase significantly as the vehicle ages, making it more expensive to continue operating older models.

Rakesh explained that this will likely push more owners to retire their older vehicles sooner. India still has a substantial number of outdated and highly polluting vehicles, including BS-III models, on the roads. These vehicles were manufactured under relaxed emission standards, and after decades of use, their pollution output has worsened. Moving these vehicles out of circulation and replacing them with newer models adhering to global emission norms could bring measurable environmental benefits.

He emphasised that driving new vehicle sales is not the primary objective of the government’s move, but such a behavioural nudge is expected to influence buying trends across the sector. Early signs already indicate that the commercial vehicle market is beginning to recover from its slump.

Rakesh believes the heavy commercial vehicle (HCV) segment has likely passed its lowest point. He pointed to rising diesel consumption and relatively stable freight rates as indicators of improving fleet utilisation. A low base from last year also increases the likelihood of stronger growth prints in the coming months. Meanwhile, demand for light commercial vehicles (LCVs) is showing positive momentum, supported by increased GST-linked economic activity and a noticeable rise in customer enquiries.

Both segments, he said, are poised for a gradual but steady recovery.

The passenger vehicle market is also set to feel the impact of recent policy changes. Rakesh expects the full benefit of GST rate cuts to emerge from the December quarter onwards, noting that the September quarter did not fully reflect the lowered tax burden. If demand remains strong and manufacturers continue to improve margins, automakers may see meaningful earnings upgrades.

While stocks like Maruti Suzuki have already seen strong performance, Rakesh believes valuations have room to rise further. Sustained demand, coupled with margin expansion, could trigger additional upgrades and potentially lead to a broader re-rating of the sector.