On March 18, 2021, the long-awaited vehicle scrapping policy of India was announced by Union Minister for Road Transport and Highways, Nitin Gadkari. The policy which was aimed at phasing out of old vehicles, which were considered to be more polluting, was pending since 2016. Scrapping old, polluting, and fuel-guzzling vehicles is an attempt to reduce pollution and road congestion. It was sent to the Cabinet Secretariat to be put up before the cabinet for its approval in February 2020. As per the Ministry of Road Transport and Highways (MoRTH), it will publish draft notifications and seek public opinion within a period of 30 days.
According to MoRTH, India has 17 lakh medium and heavy commercial vehicles (CVs) that are older than 15 years without any valid fitness certificate, 51 lakh light motor vehicles (LMVs) older than 20 years, and 34 lakh LMVs older than 15 years. The average age of CVs is over 10 years and that of the private vehicles (PVs), 10–15 years.
Highlights of the Policy
Some of the highlights of the policy are as follows:
- The absence of a fitness certificate will mean an automatic cancellation of registration for CVs that turn 15, and that the registration of PVs would be for 20 years, with renewal requiring proof of fitness. To incentivise owners of old vehicles to scrap them, the government plans to set up registered scrap centres. As a disincentive measure, increased fees for fitness certificate and fitness test may be applicable for CVs after 15 year onwards from the date of initial registration.
- PVs would be deregistered after 20 years if found unfit or in case of a failure to renew registration certificate. As a disincentive measure, increased re-registration fees would be applicable for PVs after 15 years onwards from the date of initial registration.
- It will also be mandatory to scrap all government four wheelers over 15 years old. It has been proposed that all vehicles of the central government, state governments, municipal corporations, panchayats, state transport undertakings, public sector undertakings, and autonomous bodies with the Centre and state governments may be de-registered and scrapped after 15 years from the date of registration.
- Criteria to determine vehicle fitness will primarily be emission tests, braking, safety equipment, among many other tests. This will be done as per the Central Motor Vehicle Rules, 1989.
- Rules for fitness tests and scrapping centres will be applicable from October 1, 2021, while scrapping the vehicles of government and public sector undertakings (PSUs), which are older than 15 years, will come into effect from April 1, 2022.
- The mandatory fitness testing for heavy commercial vehicles will be in force from April 1, 2023, and the same will be in place in a phased manner for other categories from June 1, 2024.
- A vehicle failing the fitness test or failing to get a renewal of its registration certificate will be declared as ‘end of life vehicle’.
Benefits of the Policy
The policy is expected to lead to an investment of around Rs 10,000 crore and create 35,000–50,000 jobs. It will cover an estimated 5.1 million LMV (mostly cars) that are above 20 years of age, while another 3.4 million LMVs that are above 15 years. It will also cover 1.7 million medium and heavy motor vehicles (trucks, buses, commercial vans), that are above 15 years, and currently without valid fitness certificates. It will encourage public and private participation (PPP) in opening Registered Vehicle Scrapping Facility (RVSF) and in setting up of automated fitness centres (AFCs) on a PPP model by state government, and private sector automobile companies, etc. It will also revive the ailing CV segment and in turn will boost state exchequer’s revenue on sale of new vehicles.
The scheme shall provide strong incentives to owners of old vehicles through registered scrapping centres, which shall provide the owners with a scrapping certificate. Some of the incentives are:
Scrap value for the old vehicle given by the scrapping centre is expected to be 4–6 per cent of the price of a new vehicle; a potential road-tax rebate of up to 25 per cent for new PVs, and up to 15 per cent for new CVs from the states; and a potential discount of 5 per cent offered by auto companies against the scrapping certificate in order to encourage and motivate customers to scrap their old vehicles.
Actually, the automotive sector has long been undergoing multiple regulatory challenges on a frequent basis for some years now. The present policy is a right step in the same direction.
Views of Experts on Policy
As per industry experts, the policy will provide a fillip to the Indian government’s efforts to position India as a global automobile manufacturing hub, as well as benefit global automakers with manufacturing industries in India, including Japanese giants Suzuki, Toyota, Nissan, amongst others.
Views in Favour the PolicyRajeev Singh, Partner and Automotive Leader, Deloitte India stated, “We welcome the announcement made by Ministry of Transport and it’s a good mix of both—incentives for those who opt to scrap their old vehicles and an additional burden for those who would like to continue with their old vehicles. This fine balance should help in driving old vehicles out of road leading to reduction in pollution levels and driving demand for new vehicles across all the segments. This announcement will also lead to creation for more scrapyards in the country and effective recovery of waste from old vehicles.”
Views Against the PolicyAccording to an article by S.A. Aiyar published in the Times of India, “Global experience from earlier scrappage policies highlights the shortcomings of scrappage. For starters, scrapping older vehicles makes for bad policy if the older vehicles have been well-maintained or fitted with new engines, as often happens in India. Second, scrapping old vehicles will raise the price of second-hand vehicles. This will hit all poorer car owners and smaller truck owners even while enriching car manufacturers who are already profitable. Third, evidence from many countries suggests that a scrappage policy brings forward new vehicle purchases by a few months but does not improve long-run sales. … India’s auto industry was badly hit during 2020 and would have welcomed a boost then, but sales are booming again today, and the industry needs no artificial boost at government expense. … Ideally the government should incentivise a scheme by auto companies to refurbish old vehicles to pass emission standards and give new buyers a limited warranty. This will improve the longevity of vehicles in India and conserve scarce capital in a poor country. Refurbished, warrantied vehicles have a thriving market even in the US. Such refurbished vehicles will be especially attractive for export to other developing countries. Even un-refurbished vehicles will have an export market, as was proved by the German experience in 2009.”
Opinion Expressed in Editorials and by Other Groups
The Hindu in its editorial, favours the policy saying, “The much-awaited vehicle scrappage policy announced by the transport ministry, coming after the move for a green tax on ageing and polluting automobiles, promises economic benefits, a cleaner environment, and thousands of jobs. Although it will take until April 1, 2022 for vehicles belonging to the government and the public sector to be scrapped, another year thereafter to identify junk heavy commercial vehicles through mandatory fitness checks, and finally other vehicles by 2024, it is a constructive road map.
Vehicle scrappage and replacement is seen internationally as a route to rejuvenate COVID-19-affected economies by privileging green technologies, notably electric vehicles (EVs), and also as an initiative to achieve net zero emissions by mid-century under Paris Agreement commitments.”
The editorial of the Indian Express also hails the policy. It says, “The announcement of the scrapping policy coincided with the sobering conclusions of the World Air Quality Report: Twenty-two of the 30 most polluted cities in the world are in India—transportation is among the major sources of air pollution. The scrapping policy is a reassuring testament to the government’s awareness of such concerns. It is also in sync with its endeavour to reduce road accidents by introducing safety provisions in the Motor Vehicles Act 2019. The policy will ensure that more cars on Indian roads are equipped with the rapidly improving technology to secure passengers during a crash. The government must now take the next step for modernising the country’s car fleet by introducing the long-awaited electric vehicle policy.”
The Economic Times in its editorial writes, “With over a quarter of a billion registered vehicles nationally, it is time India had a modern vehicle scrapping industry. The vehicle scrappage policy intention previewed in the Union budget speech is sensible indeed. It can well boost fuel efficiency, reduce the oil import bill and stem environmental pollution too. But, in tandem, we do need to put in place proactive policy for organised scrapping of steel, and incentivise regular vehicular maintenance to enforce pollution norms rather than go by vehicular age stipulation to have them off the roads.”
Deccan Herald opines that “The policy has many salutary aims. Old vehicles are a major source of pollution and so moving them out of circulation will promote public health and help counter climate change. India’s cities are among the most polluted in the world. It is a road safety measure also. It will give a big boost to the automobile industry and its ancillary industries as the scrapping of old vehicles will lead to a major increase in production and sales of new vehicles.”
But along with the green tax and incentives, experts say there is a need to develop scrappage as an independent industry. Rao says many original equipment manufacturers (OEMs) are exploring vehicle scrappage as an industry as it can help reduce their raw material cost and price vehicles competitively for domestic and export markets. “The country’s infrastructure is not enough to handle scrapping/recycling of millions of vehicles. Recycling is primarily handled by informal small-scale outfits. It will require organising scrapping centres compliant with state pollution standards,” he says. (Rohan Rao is partner in the KPMG India. KPMG stands for Klynveld Peat Marwick Goerdeler and is one of the leading providers of risk, financial services, and business advisory, etc.
According to the website teambhp.com, India’s largest automotive forum known for its independent, unbiased, authentic views, “India is not a rich country to afford 15-year shelf lives of automobiles (only privately owned vehicles are being discussed here). We have the lower class, lower middle class, daily wagers, retired persons, and a host of others who buy an automobile only once or twice during their lifetimes. Apart from this, we have enthusiasts who maintain very old automobiles (leaving apart the classic and vintage categories, but only focussing on the 16–49 years old automobiles) in a pristine condition, that could be 16–49 years old. The automobiles aged 50 plus are to be soon protected as historic vehicles as per a draft notification by the union road transport ministry, that may soon become law.
Hence, the targeted 16–49 years old automobiles by the Society of Indian Automobile Manufacturers (SIAM) and Federation of Automobile Dealers Associations (FADA), also aided by the two major car-scrappage plants being readied by Mahindra and Suzuki-Toyota need a compulsory scrappage policy for which they are tirelessly lobbying. These are sinister moves and need to be short-circuited.
Yes, as the policymakers say, they will import ‘end of life cars’ from abroad and salvage them here in these two (plus more in future) plants, this is a welcome step. Plus, unauthorised scrapping releases harmful pollutants in India and if it’s done at environmental-friendly and authorised plants, the risks will be lesser.
No civilised country in the world other than Japan has a compulsory ‘end of life’ policy for automobiles. France levies higher taxes on older, non-classic/vintage automobiles. … To counter argue with the clean air, green and pollution lobbies who say that older automobile riddance will clear the air of toxicity, the Delhi and NCR smog of winter 2019 was the worst ever, despite the fact that all older private diesel and petrol cars have been banished. These lobbies if at all they want clean air and greenery, free of pollution, must reason for incentivisation of public transport and disincentivisation of personal transport with the government.”
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