Vehicle Scrappage Policy

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A Investor Summit will be organized to invite investment for setting up vehicle scrapping infrastructure.

About the Summit

• The summit involves the participation from potential investors, industry experts, and concerned central and state government ministries.
• The Summit is being organized to invite investment for setting up vehicle scrapping infrastructure under the Voluntary Vehicle-Fleet Modernization Program or the Vehicle Scrapping Policy. 
• It will also draw focus on the synergies presented by the ship breaking industry at Alang, for development of an integrated scrapping hub.

Vehicle Scrappage Policy

• It was first announced in the Union Budget 2021-22.
• The Vehicle Scrapping Policy is aimed at creating an eco-system for phasing out unfit and polluting vehicles in an environment friendly and safe manner. 
• The policy intends to create scrapping infrastructure in the form of Automated Testing Stations and Registered Vehicle Scrapping Facilities across the country.
• Old and unfit vehicles whose life cycle is complete shall be scrapped. This will be a voluntary process but defined by rules. 
• For instance, old vehicles (15 to 20 years) need not be scrapped compulsorily. However, they will have to undergo a fitness test after a defined period. Failing the test would most likely lead to vehicle scrappage.
• The policy would cover an estimated 51 lakh light motor vehicles (LMVs) that are above 20 years of age and another 34 lakh LMVs above 15 years of age.
• Rules and regulations will be made around the actual scrapping process, which shall be laid out in the announcement made by the MoRTH.
• Vehicle owners will be given certain benefits for scrapping old vehicles.

Categorisation of vehicles concerning scrappage:

• Government Vehicles
  • The Scrappage Policy for government vehicles was approved in January 2021. 
  • As per this approval, vehicles belonging to the Centre as well as State Government, that are more than 15 years old, shall be scrapped. 
  • Such a policy will come into effect next year. The date set for the application of this policy is 1 April 2022.
• Commercial Vehicles
  • Vehicles that are used for commercial purposes; for example, transport vehicles, are termed as commercial vehicles. 
  • After completion of 15 years, the commercial vehicle will need to undergo a fitness test. 
  • If considered unfit, the vehicle shall be scrapped as per the commercial vehicle scrap policy rules.
• Private Vehicles
  • Vehicles used by citizens to commute from one place to another are termed as private vehicles. 
  • The age limit to undergo a fitness test for a private vehicle is set at 15 years.
• Vintage Vehicles
  • Vintage cars and bikes are generally older than the average vehicle on the road. 
  • However, they are driven less frequently and maintained well. 
  • Thus, this is a separate category and the nature of such vehicles shall be considered regarding directives around scrapping them.

Image Courtesy: HT

Fitness Tests for Vehicles:

• It is similar to checking a vehicle’s emission levels via the Pollution Under Control (PUC) test, you will be required to put your vehicle through an automated Fitness Test as well after the stipulated period, which is 15 years for a private vehicle. 
• The validity of such a test would be for five years. Post which, the vehicle is supposed to undergo another one. Each test would cost around Rs. 40,000. 
• A Green Cess (around 10 to 25% of road tax), which varies as per location, will also be charged. Also, old vehicles need to renew their registration, which leads to more expenses.
• Failure to pass the Fitness Test will cause problems while renewing the vehicle’s registration. 
  • A vehicle that has failed the test will be considered unregistered. And driving an unregistered vehicle on public roads is a punishable offence. 
  • The likely option as a vehicle owner, in this case, would be to scrap the vehicle. Or else repair the vehicle so that it passes the Fitness Test and then follow the process and make the payment for renewing the registration.

Disincentives for keeping old vehicles:

• States can levy an additional ‘Green Tax’
• Hike in renewal of registration fee for private vehicles
• Increase in renewal of fitness certification for commercial vehicles
• Automatic deregistration of unfit vehicles

Benefits

• Rise in demand for new cars: With old vehicles being scrapped, the demand for new vehicles will rise as the old ones will need to be replaced by new ones. More than 51 lakh light motor vehicles (private and commercial) are more than 20 years old. 
• Incentives: Vehicle owners might receive tax benefits as an incentive to scrap an old vehicle. Scrappage value of vehicle in range of 4-6% of the ex-showroom price, rebate of upto 25% for PV and 15% for CV by State Governments on Road Tax, 5% discount from OEM’s on new vehicle and registration fee being waived off will definitely help to excite the customer and motivate him to scrap his old vehicle.
• Employment growth: Overall, the automobile sector will benefit from the new scrappage policy leading to more job opportunities. For example, new vehicle scrapping centres will need manpower.
• Safer vehicles: New advanced vehicles will be comparatively safer. For example, new cars come with superior safety features.
• More recycling & Better air quality: Scrapping unfit vehicles will result in less air pollution and better air quality. 
• Best price for scrap: Vehicle owners might also get the best price for car scrappage for workable parts such as tyres. The recycling industry will also be more active leading to higher revenue.

Challenges

• Entire onus on State Governments: The proposed policy puts the entire onus of incentivising fleet renewal on the state governments. They have been advised to waive off a big chunk of road tax and registration fees on replacement vehicles. 
• Funding support: The more compelling question is whether the central government would consider a centrally supported stimulus programme for post-pandemic green recovery. This is the global trend wherein governments have been giving conditional bailouts or tax support linked to emissions targets.
• BS 6 transition for heavy duty vehicles: 
  • More effective leveraging of this policy is possible if the central government allows GST cuts for replacement vehicles, including electric vehicles, and considers direct incentives for targeted fleet renewal of most polluting old trucks and buses based on BS6 standards.
  • An old BS1 (Bharat Stage Emission Standard) truck was originally designed to emit 36 times higher particulates compared to a BS6 truck.
  • For such a targeted programme for heavy-duty vehicles, the policy can take a more nuanced approach. Consider that some truck owners may want to only dispose of the very old trucks without replacing them. But others may want to scrap and replace the older trucks.
• Replacement with electric vehicles: 
  • Cars and two-wheelers. For these vehicles, the central incentive can be linked with replacement with electric vehicles. 
  • This can be additional to the normal scrapping of end-of-life vehicles as already proposed in the draft policy. This can maximise air quality gains.
  • In Germany, replacing old cars with newer ones powered with internal combustion engines did not provide as much effective emissions gains as replacing them with electric vehicles, according to a study by the International Council on Clean Transportation. 
• Infrastructure: 
  • Build an infrastructure of testing and scrapping centres quickly across the country. Due to the lack of a supporting infrastructure, implementation of the scrappage policy will be challenging. 
  • Currently, India has just seven automated fitness test centres and two authorised scrappage centres, which is inadequate to cater to the market. 
• De-registering vehicles: 
  • Further, the process to deregister vehicles also needs to be simplified. 
  • At present, deregistering vehicles is a dreadful experience for most owners who want to sell or scrap their old vehicles, thereby discouraging many interested in discarding old vehicles.

Conclusion

• The policy is directed towards building a system to scrap unfit vehicles in India. 
• The scrapping of unfit vehicles will help reduce air pollution to a considerable extent (subjective as per location).
• People will look forward to buying environment-friendly, safe, and technologically advanced vehicles.

Sources: PIB