Vehicle Scrappage Policy and the associated challenges: Explained

Recently, The Finance Minister announced the “Vehicle Scrapping Policy” in her Budget speech. The policy will phase out older, inefficient and polluting vehicles. Apart from that, the policy will also promote the use of more environment-friendly vehicles and reduce the oil import bill. But it is not an easy task and has a few challenges associated with it.

What is the proposed Vehicle Scrappage Policy?

The Ministry of Road and Transport is yet to announce the proper guidelines. But according to the Budget speech, the important provisions of the scrappage policy will include the following features. Such as

• • The private vehicles older than 20 years and commercial vehicles older than 15 years, can be scrapped voluntarily. To run these vehicles on the road, a fitness certificate (FC) will be mandatory.
  • Automated vehicle fitness centres belong to the government will issue certificates after conducting fitness tests.
  • Each fitness certificate is valid for five years. After that, the vehicle will undergo another fitness test. Those having this certificate will not need to pay any registration fee while buying a new vehicle. The certificate is tradable, which means it can be used by anyone and not necessarily by the owner of the scrapped vehicle.
  • If a vehicle fails the fitness test, the government will not provide renewed Registration Certificates (RC) for those vehicles. As per the Motor Vehicle Act, 1988, driving a vehicle without an RC is illegal in India.
  • Each vehicle is permitted to have three failures in the fitness test. After that, the vehicle might be forwarded to vehicle scrapping.
  • The government is expected to provide monetary incentives to the owners scrapping the vehicles.

Each fitness test will approximately cost Rs 40,000. If the vehicle passed the fitness test, the owner of the vehicle has to pay road tax, and a possible “Green Tax” (Tax levied on goods that cause environmental pollution).

The total cost involved in pursuing a Fitness test and paying “Green tax” will act as a deterrent to have older vehicles. This will further facilitate voluntary Scrapping of the old vehicle and buying a newer one.

Read more about the proposed Green tax

Need for such Vehicle Scrappage Policy:

First, According to the Centre for Science and Environment (CSE), by 2025 India will have over two crore old vehicles nearing the end of their lives. Not only that, India adds 1,400 vehicles every day. The scrappage policy will reduce the congestion on the roads.

Second, A logical extension of NGT ruling for Delhi NCR and Scrappage policy of Government Vehicles.

• • In 2015, National Green Tribunal barred diesel vehicles older than 10 years to commute on Delhi NCR roads. The scrappage policy is the next step to prevent them from further commuting on roads.
  • Further, the government accepted the Scrappage policy for Central and State Government vehicles older than 15 years on January 25, 2020. The policy will come into effect on April 1st, 2022.
  • Apart from that, the government also introduced a draft Vehicle Fleet Modernization Programme in 2016. But the project never got materialized.

Third, IIT Bombay’s conducted a multi-city study in 2014. The study estimated that pre-2005 vehicles were responsible for 70 per cent of the total pollution load from vehicles. The scrappage policy will be a shot in the arm for these polluting vehicles.

Benefits of the proposed policy:

First, The Scrappage policy will benefit the following sectors at one go.

• • The policy will stimulate the domestic automobile and automotive industry. The automobile industry is projected to grow at an annual rate of 22% if this policy is implemented properly.
  • Apart from that, it will provide a massive opportunity for players in the organised scrappage and recycling industry. The scrapping will provide recovery of steel, aluminium, plastic etc. and boost the industries associated with it.

Second, Curbing air pollution: Old vehicles are not compliant with Bharat Stage VI emission standards. This is leading to more air pollution. For example, one 15-year-old vehicle has emissions equivalent to 25 new-generation vehicles. The scrappage policy will reduce the pollution level by 25 percent as compared to old commuting vehicles.

Third, Increase in tax revenue for the government. The revival of the automobile and other sectors associated will boost the tax revenues. According to an estimate, taxes from the automobile sector will amount at Rs 10,000 Crores, if scrappage policy is implemented properly.

Fourth, Containing oil imports: According to the BEE (Bureau of Energy Efficiency) estimates, India has to enforce Scrapping old vehicles and shifting towards higher fuel efficiency norms. If it is achieved, then as per the BEE estimates, “there will be a reduction of 22.97 million tons of fuel demand in India by 2025”. This will help in saving oil import and associated costs.

Fifth, Fulfilling India’s International commitments:  India has committed to the Paris Agreement on Climate Change and provided national targets for reducing emissions. The Scrappage policy will reduce the pollution level and also fulfil India’s commitment to reduce CO2 levels to tackle Climate Change.

Overall the Scrappage Policy has the potential to revive the Indian Steel sector and also has the potential to promote India as a vehicle manufacturing hub in the world.

Challenges associated with the Vehicle Scrappage Policy:

First, Who will bear the cost of monetary incentive provided to owners?  The scrappage industry may provide incentives for scrapping older vehicle (like recovery of scrap, steel etc.). The government is not a direct beneficiary except the environmental cost. Thus, providing incentives from public money might not be feasible.

Second, In rural areas, old vehicles are being used as the owners have very limited financial resources to purchase new vehicles.

Third, Scrapping capacity of India is in doubt. India so far has only one government-authorized scrappage workshop in Greater Noida. Also, the government do not have any standard operating procedures (SOP) for setting up of vehicle scrapping centres. Formulating a policy without having the capacity will lead to accumulation of old vehicles like solid wastes.

Fourth, Regulation of pollutants released during scrapping. The scrapping of Vehicle will release toxic metals like mercury, lead, cadmium or hexavalent chromium. If not properly regulated, it will pollute the environment and have long-lasting consequences.

Read more about the taxing older vehicles: a way forward

Suggestions:

First, In the Electric Vehicle Policy of the Delhi government, they linked scrappage incentives with buying of electric vehicles. Such a special linkage of policy is necessary at the national level to promote the electric vehicle.

Second, There must be an exception for Vintage and Classic cars. The government also have to introduce a provision for Modern Classics. These are an important part of automotive history and the history of humanity. Since most of these vehicles are used sparingly and in the well-maintained condition, they can be exempted.

Third, Centre for Science and Environment (CSE) released a report titled “What to do with old vehicles: Towards effective scrappage policy and infrastructure”. In that, the CSE gave a few important suggestions for vehicle scrapping policy in India. They are

• • There should be a separate effort to include Extended Producer Responsibility (EPR) in collecting the car for scrapping. Apart from that, there should be legally binding rules for scrapping.
  • The scrappage scheme should incentivise replacement of old vehicles with EVs. On the other hand, the government should also frame a policy to reduce the purchasing of traditional petroleum-powered vehicles.

The Scrappage policy has the potential to meet the government-set target of 30-40 percent electrification of the vehicle fleet by 2030. But it can be sustainable only when the government provide adequate support to Electric Vehicles such as by creating the necessary infrastructure for charging, manufacturing battery packs etc.