India’s Vehicle Scrappage Policy


In the start of the year 2021, the much-awaited draft policy on vehicle scrappage was finally out. This policy defines the criteria for end-of-life vehicles and scrapping them. The draft also makes a provision of setting up scrapping facilities to safely dispose the waste and recover the material. This move of phasing out old and unfit vehicles by central government was welcomed by the leading players in Indian automotive sector. It is an important step towards building an infrastructure for organized scrapping of vehicle.

During the Union Budget 2021-2022, Finance Minster Nirmala Sitharaman declared that the policy would help in encouraging fuel-efficient and eco-friendly vehicles, thereby reducing the pollution levels caused by vehicles and oil import bill. The vehicles would be undergoing a fitness test in automated fitness centres after 20 years in case of personal vehicles (PV) and after 15 years in case of commercial vehicles (CV). As per Road Transport and Highways Minister Nitin Gadkari, this policy would boost the Indian automobile sector and would help them in reaching a turnover of Rs. 10 lakh crores in the years to come.


Fine print of this policy

1. This policy would help people to scrap their cars after 20 years, while for vehicles like trucks, buses etc. the limit is set to 15 years.

2. For using older vehicles, a green tax might be imposed.

3. For vehicles older than 15 years at the time of getting renewable certificate, a road tax of 10-25% might be imposed.

4. States are being advised by the central to provide rebate of up to 25% on road taxes for newly purchased vehicles and a waiver if the buyer provides scrappage certificates.

5. Only after clearance via automated fitness test (at the time of renewal), the clearance certificate would be awarded.

6. The government has allowed 26 centers for giving fitness certificates which would be operated by the state governments.

7. For commercial vehicles, the government would start mandatory fitness testing from April 2023 and for other categories, it will start from June 2024 in a systematic phased manner.


The impact of this policy

As per Vinkesh Gulati, President of Federation of Automobile Dealers Associations, taking 1990 as the base year, at present around 37 lakh commercial vehicles and 52 lakhs personal vehicles are eligible for vehicle scrapping policy out of which 10% of commercial vehicles and 5% of personal vehicles are still running on the roads. As people would opt to scrap their vehicles, this would lead in the rise of demand for new ones.

Many countries across the world have also imposed such policies in order to boost their economy or to reduce the vehicular pollution in the environment. For example, after the financial crisis in 2008, the USA introduced the "Car Allowance Rebate System" in which for scrapping old vehicles, people were given approx. $4500 which led to boosting the economy. This led to more than 7 lakh vehicles being in the scrapyard.


This also led to a different mindset among people, wherein people chose to buy cars which were cheaper by $4700 compared to the car they previously had. Also, the new cars had 58% superior fuel efficiency than the old ones. A similar impact at a lesser scale is expected to be in Indian ecosystem with a slightly higher cost for retaining older vehicles.

At present, in India, the electric vehicles are costlier than petrol vehicles. The cheapest electric vehicle is Tata Teego which cost around 9.5 lakhs while rest cost around 22 lakhs. If enough encouragement is given and prices are lowered then the use of electric vehicles could be hiked.

This new policy is an encouraging step for new and used car industry as this move will ensure faster movement of cars from new to used and to scrapyard while polluting less. This ensures that the industry keeps pace with the economy and upgrades the people of India.


Challenges

The main challenge in implementing this policy is of building the infrastructure to scrap vehicles in large numbers. Auto parts like batteries, display screens, sensors, headlamps, switches etc. are not recyclable, thus removing them and disposing them in a way that the environment is not harmed would be an enormous task. The government is also yet to decide on the incentives be given to volunteers for scrapping their old cars. Also, would this incentive be paid by central government or state government and what would be the criteria are some details that are yet to be decided.


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Environmental Perspective

There were just 0.3 million motor vehicles in 1951 which has increased to 230.03 million in 2016, as per the note presented in Lok Sabha. This is in fact a very huge milestone and the impact of old vehicles on environment is severe.

Old commercial vehicles account for only 5% of the total vehicles but their contribution turns out to be 65 to 70% when it comes to pollution. Same impact is also visible in vehicles older than 20 years, while they account for only 1% but they contribute 15% to the total vehicular pollution.

With this increase in the number of vehicles and people using more and more old vehicles, the concentrations of pollutants such as carbon monoxide, nitrogen oxides and air toxins in the air we breathe also goes up.

As per Vinay Raghunath, automotive sector leader EY India, "The scrappage policy is a much-awaited development where apart from boosting demand, it will also help reduce pollution and fossil fuel consumption while also enabling reuse of steel & aluminum. An extension of this policy to tyre scrappage would help boost demand while also helping India become more Atmanirbhar."

By - Shivang Jitendra Khare

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