116 B, Mittal Towers, Nariman Point, Mumbai, India

Introduction

Prime Minister Narendra Modi, on 13 August 2021, launched the New Automobile Scrappage Policy (Voluntary Vehicle Fleet Modernisation Programme). The Policy will be in effect from 1 April 2022, aimed at phasing out cars and commercial vehicles which are older than 20 or 15 years, respectively. The Policy incentivizes people to get rid of their old vehicles that have been in the public domain. All government vehicles which are above 15 years of age will have to be scrapped entirely. For heavy vehicles, the deadline will be 2023, and for personal vehicles, the deadline will kick in from June 2024. For instance, a vehicle above 15 years or 20 years, depending on whether it’s commercial or personal, will have to undergo a fitness test. Once this fitness test is passed, an additional tax has to be paid on it. If the vehicle fails the fitness test, the vehicle will be qualified as ‘end of life vehicles’ and can be taken to a scrapyard where the owner will be incentivized to buy a new vehicle. The incentives to the customers are proposed in the following manners -

  1. Value of scrap
  2. Discount offers from the dealership up 5 percent
  3. Deduction or waiver in road taxes of up to 50 per cent

Objectives

  1. To phase out unfit and polluting vehicles
  2. Bid to encourage fuel efficiency and environmental-friendly vehicles
  3. To create job opportunities
  4. To boost demand for new vehicles
  5. To reduce oil import cost

Key Points

Title Description
Fitness Test
  • Old Vehicles will have to pass a fitness test before re-registration. As per the policy, government commercial vehicles more than 15 years old and private vehicles over 20 years old will be scrapped.
  • Old Vehicles will be tested at an authorized Automated Fitness Centre and not be scrapped merely based on age.
  • Automated fitness tests & Scrapping under the public-private partnership (PPP) model.
  • Emission test, braking system, safety components will be tested, and the vehicles which fail in the fitness test will be scrapped.
  • If the old vehicle passes the test, the owner can continue to use it, but the registration charges will be much steeper.
Fitness Certificate Commercial cars that do not get a fitness certificate will be deregistered after 15 years. Private automobiles will be deregistered after 20 years if deemed unsuitable or if registration certificates are not renewed. The grounds for scrapping a vehicle are mainly based on the vehicle's fitness as determined by Automated Fitness Centres (AFCs) for commercial vehicles and non-renewal of registration for private cars.
Road Tax Rebate The State governments may be advised to offer a road tax-tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles to provide an incentive to owners of old vehicles to scrap old and unfit vehicles.
5% Rebate on New Purchases Automobile Manufacturers are advised to provide about 5% Rebate on New Car Purchases to the consumers in lieu of scrapping the old cars.
Green Tax
  • The Government plans to impose Green Taxes on old polluting vehicles.
  • Transport vehicles older than eight years could be charged a green tax at the time of renewal of a fitness certificate at the rate of 10%- 25% of Road Tax
  • Hybrid Vehicles, EV’s and Vehicles running on Alternate fuels like CNG, ethanol and LPG will be exempted.
Value addition through Scrap Material
  • Scrap material will create a lot of value addition.
  • Raw materials like Steel, Plastic, Rubber, Aluminium would be recycled.
  • It will reduce the manufacturing company’s cost by 30-40%.

Significance

1. Establishment of scrapyards The Policy will result in the establishment of more scrap yards across the nation and the efficient collection of scrap from obsolete cars. India had to buy scrap worth 23,000 crores in the past year due to India's scrapping being unproductive and the country's inability to recover energy and rare earth metals, Prime Minister had said.

2. Employment Around 35,000 people would be employed at the new fitness centres, and Rs 10,000 crores will be invested in the economy.

3. Increased Revenues This would increase sales of large and medium commercial vehicles, which had been contracting as a consequence of the economic downturn caused by IL&FS's bankruptcy and the Covid-19 epidemic.

The government treasury is estimated to receive between Rs. 30,000 and 40,000 crores from this policy through Goods and Service Tax (“GST”), Union Transport Minister Nitin Gadkari had said.

4. Reduction in Pollution levels It will have a significant impact on the modernization of the vehicular population. It will aid in the phase-out of inefficient and polluting cars throughout the nation, as well as promote a circular economy and waste-to-wealth campaign.

Older cars damage the environment ten to twelve times more, and 17 lakh medium and heavy commercial vehicles are projected to be over 15 years old.


Conclusion

The implementation of the Vehicle Scrappage Policy marks a watershed moment in India's growth path. It is a great first step in reducing pollution and promoting an environment friendly ecosystem. The Policy is anticipated to attract a total investment of Rs. 10,000 crores. Additionally, since the manufacturing company's costs would be reduced by 30-40%, the components will be less costly, increasing their competitiveness in the worldwide market.

The Investor Summit in Gujarat with the purpose of establishing a car scrapping infrastructure expands the possibilities. Alang in Gujarat, Asia's biggest ship recycling and scrapyard, may become a centre for old car scrapping. Ships from all over the globe come to Alang to be scrapped, and a substantial portion of material from the scrappage is recycled for use in a variety of industries. As a result, the policy while acting as an economic stimulant would contribute to reduction in environmental pollution.