The Nifty Auto index rose 1.5 percent during trade on Wednesday following news that Cabinet nod is awaited for the approval of scrappage policy in today's meeting.

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The Ministry of Road Transport and Highways has prepared a draft note on scrappage policy for vehicles older than 15 years. The draft policy has been sent to the Prime Minister's Office for approval after final comments from all ministries.

All constituents in the auto index were trading in positive in early morning deals. At 10:05 am, Bharat Forge, Tata Motors, Ashok Leyland, M&M, Maruti Suzuki, and TVS Motor Company were up between 1.5-3 percent. In comparison, the Nifty50 was trading 0.4 percent or 43 points higher at 12,081.

Talking to CNBC-TV18, Union transport minister Nitin Gadkari said the draft policy is in its final stages and the government is only waiting for a nod from the Cabinet.

“It is in the last stage. In due course, it will be approved by the Cabinet and the government will implement it. This scrapping policy is going to encourage automobile manufacturing activities in the country and help India become an automobile manufacturing hub. It creates more employment and reduce the cost of the cars,” Gadkari said.

As per the draft authorised vehicle scrapping facility (AVSF) guidelines, individuals, firms, societies or trusts will be allowed to set up scrappage facilities subject to meeting the eligibility criteria and receiving authorisation from the licensing authority. The authorisation will be valid for 10 years and can be renewed for another 10 years.

An aggressive scrappage policy is the need of the hour to address the demand slowdown, said Mayur Milak, senior research analyst at IndiaNivesh Securities, adding that he continues to be cautious on the whole segment.

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