What does Auto Scrappage Policy hold in store for its stakeholders?
With the increase in automobile users over the past few years, India has witnessed a rise in pollution. This pollution is mainly caused because of vehicles emitting harmful gases. The unfortunate scenario made the Government of India (GoI) think about a viable solution to reduce pollution without barring people from using vehicles. This led to the introduction of the National Automobile Scrappage Policy. Here are the complete details of the hot topic in the market.
Aim of the Auto Scrappage Policy
Introduced by PM Narendra Modi in 2021, the Vehicle Scrappage Policy in India aims to recycle old and unfit vehicles. The policy took effect in April 2022. Notably, the policy considers fitness as the primary criterion for scrapping a vehicle, not age. Another objective of the government-funded policy is to phase out old commercial and passenger vehicles. This reduces urban air pollution, increases road and passenger safety, and boosts vehicle sales.
What makes the Vehicle Scrappage Policy different?
The policy mandates passenger vehicles older than 20 years & commercial vehicles older than 15 years to pass a "fitness and emissions test" to retain their registration. Vehicles failing the mandatory test are termed end-of-life vehicles (ELVs) Upon failing the test, these vehicles will lose their registration certificate and are recommended to be scrapped. The National Automobile Scrappage Policy also introduces incentives to scrap old vehicles, including discounts on purchasing new vehicles against a scrappage certificate.
Importing old vehicles for recycling in India
Expressing his views on the Auto Scrappage Policy, Minister of Road Transport & Highways of India, Nitin Gadkari, in his speech, stated that the two ports, namely, Alang ship-breaking yard in Bhavnagar and Kandla port in Kutch, can play a crucial role in realising India's dream of becoming the scrap recycling hub of entire South-East Asia. This can be possible by importing old vehicles from neighbouring countries in India for recycling.
Why was there a need for the new Vehicle Scrapping Policy in India?
The existing vehicle recycling and dismantling sector in India is quite unorganised. Moreover, old vehicle recycling needs to be done in an environment-friendly way. This results in inefficient resource management, the recovery of valuable rare-earth metals and the non-realisation of the full value of high-strength steel alloys. Also, the existing ELV scrapping cycle has a low recovery percentage and many materials are not properly recycled or wasted. According to unofficial industry estimates, global benchmarks for recovery from scrapped vehicles are 85-95%, whereas the recovery percentage in India is only about 70-75%. Since the overall processes in the unorganised sector for recycling/ scrapping are not performed in an environment-friendly manner, it is the endeavour of the Ministry of Road Transport & Highways of India (MoRTH) to promote the setting up of RVSF (Registered Vehicle Scrapping Facility). This will enable the use of environmentally-friendly processes in this regard. Thus, The Vehicle Scrapping Policy generates such formal business opportunities and promotes scientific recycling within the scrapping sector.
Salient Features of the National Automobile Scrappage Policy
- The Automobile Scrappage Policy is expected to cover 34 lakh LMVs more than 15 years of age and another 51 lakh Light Motor Vehicles (LMVs) that are more than 20 years of age.
- The MoRTH has introduced the Registered Vehicle Scrapping Facility Rules to enable the setting up of the latest VSF in India, which can recycle vehicles in an environmentally friendly manner.
- Under the new policy, vehicles won't be scrapped merely based on age. As stated earlier, they will be scientifically tested through automated and authorised testing centres.
- Fitness tests are mandated to know the vehicle's quality. It determines whether the vehicle is still fit to run on the roads and how much it will affect the environment.
- A valid fitness certificate will be mandatory to renew registration certificates after 15 years. The renewed certificate stands valid for five years in the case of private vehicles.
- However, one re-test will be allowed after the necessary rectification, repair and re-inspection - if directed by the appellate authority. If the vehicle fails the re-test, it will also be declared an ELV.
Pros of the National Vehicle Scrappage Policy
Honourable Minister Nitin Gadkari also made to count the benefits of the newly introduced National Auto Scrappage Policy. These are as follows -
More job opportunities
The policy will benefit all stakeholders by stimulating manufacturing and creating jobs.
Increase in GST collection
The Vehicle Scrappage Policy will help the state and central governments earn up to Rs 40,000 crore each in GST. Cheap raw materials obtained from scrapped vehicles will lower the price of vehicles and increase their sales, thereby raising GST collection.
Low cost of new vehicles
The cost of new vehicles will also be lower as recycling the vehicle scrap will offer the industry aluminium, copper, steel, plastic and rubber. If old vehicle recycling continues regularly, 99% of the materials can be quickly recovered. According to an estimate, this will result in a reduction of 40 per cent in the raw material cost, thereby reducing the prices and increasing sales.
Discount on buying new vehicles
Interestingly, MoRTH has requested automobile companies to offer a 5% discount to those who deposit their old vehicles for scrapping.
No registration fees
There will be zero registration fees for new vehicles bought if the owner shows a deposit certificate.
Tax concessions
State governments have been directed to provide concessions on Motor Vehicle Tax (MVT).
Provisions under the National Vehicle Scrappage Policy
Fitness Test
- Old vehicles need to pass a fitness test before re-registration. According to the policy, private vehicles over 20 years old and government commercial vehicles over 15 years old will be scrapped. But these vehicles will be first tested at an authorised Automated Fitness Center and won't be scrapped merely based on age.
- The braking system, emission test, and safety components will be tested. The vehicles which fail in the fitness test will be scrapped.
- If the old vehicle passes the test, the owner can resume using it, but the charges for re-registration will be much more.
- The Union Road and Transport Ministry has also issued rules for the registration process for scrapping facilities, their roles and responsibilities, and the scrapping procedure to be followed.
Disincentive
As a disincentive, increased re-registration fees will apply to vehicles 15 years or older from the original registration date.
Employment
In the new fitness centres, 35 thousand people will get employment. Moreover, an investment of Rs 10,000 crore will be pumped in.
Improved Revenue
This will increase the sales of heavy and medium commercial vehicles in the contraction zone because of the economic slowdown triggered by the Covid-19 pandemic and the bankruptcy of IL&FS (Infrastructure Leasing & Financial Services).
Imposing of Tax
Retaining vehicles older than 15 years will become an expensive affair for owners. This is so because the cost for renewal of fitness certificates will go up by eight times for private vehicles and 62 times for commercial vehicles.
Also, states will impose green tax over and above the road tax that every vehicle owner has to pay.
