India’s automobile landscape is undergoing a quiet revolution. Two pivotal policy levers, the Vehicle Scrappage Policy or Voluntary Vehicle Modernisation (effective from August, 2022) and GST 2.0 reforms (effective 22 September 2025), are converging to push demand, restructure used car markets, benefit brands, and rebuild consumer pathways.
Together, they are not just boosting new car sales but reimagining how resale and second-hand markets operate. In this post, we unpack how these two policies interact, what real numbers brands are seeing, how the second-hand and organised resale markets might evolve, and what consumers and industry players can expect ahead.
Understanding the Policies: The Powerful Boosters for the Automobile Industry
Vehicle Scrappage Policy: What It Says & Why It Matters
India’s scrappage policy (also called Voluntary Vehicle Modernization Program) is designed to phase out old, inefficient, polluting vehicles.
Under this policy: Private vehicles older than 20 years, and commercial vehicles older than 15 years, must undergo fitness testing. If they fail, they are designated as ELVs (End-of-Life Vehicles) and de-registered.
The government is establishing Registered Vehicle Scrapping Facilities (RVSFs) and Automated Testing Stations (ATSs) across India to operationalise this.
Source: NDTV India
Incentives are proposed including discounts on new vehicle purchases (e.g. up to 1.5% or ₹20,000) against scrappage certificate, reductions in road tax, waiver of registration fees in some cases.
The objective is to develop a cleaner fleet, improved road safety, formalization of scrapping / recycling, and demand boost for new vehicles.
Market sizing also suggests major potential. The India vehicle scrapping market is estimated at USD 11.2 billion in 2025 and forecasted to grow to approx. USD 27.5 billion by 2032.
Takeaway: The India Vehicle Scrappage Policy creates a push factor for replacement. Owners of old vehicles now face an incentive (or regulatory pressure) to shift out of aged vehicles, creating additional feed into new / used markets.
Major Players of India’s Used Car Market 2025
India Vehicle Scrappage Policy is a jackpot for the used car market of India. The market value of the second-hand vehicle market is $32.4 billion and projected to reach $73 billion by 2028. (Source: Business Standard)
Major Players as of October 2025
- Digital first platforms – Spinny and CARS24
- Traditional organised players – Mahindra First Choice Wheels and Maruti Suzuki True Value
- Online marketplaces – OLX Autos and CarTrade
- Manufacturer-backed certified pre-owned programs – H Promise from Hyundai and U Trust from Toyota
GST 2.0 Reforms: What Changed & Why It Helps
On 22 September 2025, India implemented GST 2.0, which revised GST slabs across many goods, including auto components, vehicles, and associated services.
For automobiles and components: removal of extra cesses, rationalization of component tax burdens, and reductions in effective GST on many models.
The policy triggered a “festive buying boom,” or as PM Modi said “This is Festival of Savings” and coined the term “GST Bachat Mahotsav.”
It will put pressure on supply chains for components, electronics, and auto firms struggling to restock. Across vehicle categories, the GST cuts and festive alignment drove surges in demand during Navratri.
Takeaway: Lower input and tax burden gives automakers flexibility to pass benefits, reduce margins, or invest in features, boosting new vehicle affordability and competitiveness vs used alternatives.
Source: Indian Express
How These Policies Together Boost the Automobile Sector of India?
New Car Demand Surges via Replacement Incentives + Tax Benefits
The scrappage policy encourages replacement of old vehicles; GST 2.0 lowers the cost of new vehicles. Together, the “push + pull” effect can accelerate new car purchases, especially in mid / entry / aspirational segments.
Real results so far:
- According to FADA, passenger vehicle retail sales in September 2025 rose around 5.8% YoY, despite a slow start, thanks to the GST reforms and festival season catch-up.
- In the 9-day Navratri window, automotive sales jumped around 34% (for passenger vehicles, approximately 34.8% jump) and two-wheelers around 36%.
- Mahindra saw a 10% increase in SUV sales to dealers in September, following tax cuts on SUVs over 1,500 cc (GST reduced to 40% from 50%).
- Luxury segment also responded well to tax cuts and festive vibes. Mercedes-Benz sold over 2,500 cars in just 9 days during Navratri and BMW sold over 11,000 cars in Q1 to Q3 of 2025, a record aided by price adjustments under GST 2.0.
- Hyundai recorded its highest SUV sales in September (e.g. Creta’s monthly best ever) under the revised regime.
- Tata Motors posted historic gains: in September, it sold 60,907 passenger vehicles, up around 47% over September 2024 sales.
These examples illustrate that not only mass brands but premium and luxury segments are benefiting from the tax shifts.
Compression of Value Between New and Used Vehicles
As new cars become more affordable (due to GST reductions and scrappage discounts), the spread between new and used shrinks. This leads to:
- Some used vehicles are being pushed out of demand altogether (especially older or marginally maintained ones).
- Sellers in the used market may see reduced premiums, especially for less sought-after older models.
- Buyers may prefer certified used or “nearly new” cars backed by warranties, especially where the price delta is small.
Already, some platforms (like Cars24) are advising owners to sell or refurbish before GST 2.0 rate adjustments further reduce margins.
Organisation & Formalisation of the Resale / Trade-In / Refurb Market
Scrappage policy mandates or incentivizes formal scrapping via RVSFs. This formalization will elevate organized resale, refurbishment, and certified pre-owned chains.
RVSF is a Registered Vehicle Scrapping Facility, authorised by the Ministry of Road, Transport, & Highways. Visit the website to know more.
- Buyers will have assurance of quality, clear history, legitimate certification, making organized platforms more credible vs informal markets.
- OEMs or dealers may launch trade-in + scrappage offers, integrating with certification networks.
- Over time, fragmentation of the informal used car market may reduce, shifting volume to trusted operators.
Brand & Dealer Strategy Shifts
Brands must respond to this evolving landscape that includes;
- Models and trims previously less viable can be relisted with small price cuts.
- Dealers must manage old inventory carefully because unsold stock taxed under old rates may be harder to price. Some reports suggest dealers face potential losses from such old inventory (₹2,500 crore scale in aggregate).
- Luxury and premium brands benefit from the removal of cesses or sharper price cuts. For example: Mercedes’ record Navratri was aided by revised pricing under GST 2.0.
- Brands like Mahindra & Mahindra, with strengths in both utility / tractor / SUVs, stand to gain significantly.
Conclusion
The simultaneous push of Vehicle Scrappage Policy and GST 2.0 reforms is setting the stage for one of the most transformative periods in India’s automobile era.
- Scrappage policy forces or incentivizes exit of older, inefficient vehicles.
- GST 2.0 reduces the cost burden for new cars, making replacement more accessible.
- Together, they compress value spreads, challenge used car margins, and realign the resale market.
- Brands capable of agility, strong certification programs, trade-in offers, and inventory management are best positioned.
- Real examples from Mahindra’s SUV rebound, to Mercedes’ record Navratri sales, to Tata’s massive monthly growth, show the early reward for the bold.
Yes, some risks remain like supply constraints, stranded inventory, enforcement of scrappage infrastructure, and potential slowdown beyond festival bursts. But the momentum is clear. A cleaner, more structured, demand-driven auto ecosystem may well be taking shape.
Frequently Asked Questions
What is the vehicle scrappage policy?
It mandates fitness tests for vehicles older than 20 years (private) or 15 years (commercial); those failing are scrapped, with incentives for replacement.
What is GST 2.0?
It’s the 2025 GST reform (effective 22 September) that reorganized tax slabs and cut tax burdens especially on auto components and many vehicle models.
How much did auto sales grow in Navratri 2025?
Passenger vehicle sales jumped around 34% YoY during the 9-day Navratri period; two-wheelers saw around 36% uplift.
Which brands saw real gains?
Mahindra’s SUV sales rose around 10% in September, Mercedes sold 2,500+ cars during Navratri, Tata sold around 60,907 PVs in September (47% growth)
Will used car values drop?
Yes, especially for older models or vehicles without a strong maintenance history, as gaps to new shrinks and formal markets gain traction.
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